Viability A Planner s Perspective

Transcription

1 Viability A Planner s Perspective

2 Structure PART A CONTEXT The Government s Housing Supply Aspirations Economic Context Policy Context PART B - VIABILITY What is viability? Viability in the Planning Process Key Issues and Best Practice Conclusions

3 1. PART A -CONTEXT

4 The Government s Housing Supply Aspirations

5 What is the Government saying on the supply of new homes? David Cameron, PM, 9 September 2012 The measures announced today show this Government is serious about rolling its sleeves up and doing it all it can to kick-start the economy they provide a comprehensive plan to unleash one of the biggest homebuilding programmes this country has seen in a generation. Eric Pickles, SoS for CLG, 9 September 2012 The Coalition Government s number one priority is to get the economy growing. The need for new homes is acute, and supply remains constrained. Given the current imperative for growth, we need to do more. We must remove barriers that stop local businesses creating jobs and get Britain building again. NPPF Boost significantly the supply of housing

6 Components of GDP growth Change (%) Dwelling investment Business investment Public spending Household consumption Business investment Dwellings investment Government expenditure Inventories Net trade

7 Economic Context

8 Market Difficulties Housing delivery pressures Reduced Mortgage Availability: 80%-90% below peak Average age of first time buyer = 37 years old Could be 40 by 2020

9 YH Housing Starts down 68% from 2007 peak

10 Yorkshire and Humber Housing Starts: % change

11 Ongoing delivery challenges Limited grant and public sector funding available Landowner expectations still high Continued reliance on boom time policies and assumptions amongst some LPAs = Non-delivery VIABILITY IS A PROBLEM!

12 Policy Context

13 The NPPF places a far greater emphasis on ensuring viability and deliverability Paragraph 173: Pursuing sustainable development requires careful attention to viability and costs in plan-making and decision-taking. Plans should be deliverable. Therefore, the sites and the scale of development identified in the plan should not be subject to such a scale of obligations and policy burdens that their ability to be developed viably is threatened. To ensure viability, the costs of any requirements likely to be applied to development should, when taking account of the normal cost of development and mitigation, provide competitive returns to a willing land owner and willing developer to enable the development to be deliverable.

14 Requirement to balance local authority policy aspirations with delivery Paragraph 174: They [LPAs] should assess the likely cumulative impacts on development in their area of all existing and proposed local standards, supplementary planning documents and policies that support the development plan, when added to nationally required standards. In order to be appropriate, the cumulative impact of these standards and policies should not put implementation of the plan at serious risk, and should facilitate development throughout the economic cycle.

15 Harman Review Viability Testing Local Plans The primary role of a Local Plan viability assessment is to provide evidence to show that the requirements set out within the NPPF are met. Spending time during the plan making process to consider the cumulative impact of policy on development can result in a number of benefits for the plan, for the communities for which it seeks to provide sustainable growth, and for landowners and developers.

16 Harman Review Collaborative Approach Given the purpose and potential benefits of a Local Plan viability assessment, the process will benefit from an approach that seeks to bring people together to discuss the key issues at an early stage of preparing the Local Plan, well before the formal examination in public.

17 Harman Review How to assess the viability of Local Plan Step 1: Review existing evidence and consider scope for alignment of assessments Step 2: Agree the appraisal methodology, assumptions and information to be used Step 3: Information gathering and viability modelling Step 4: Viability appraisal and tests Step 5: Review outputs, refine and revise the modelling

18 New ways to get development going -The Growth and Infrastructure Act The Growth and Infrastructure Act is a major landmark for the coalition government. These new laws will reform our economy so it can boost investment, growth and jobs by streamlining a lot of confusing and overlapping red tape that all too often gets in the way of people s everyday lives. Modifications or discharge of affordable housing requirements Amends TCPA 1990 to provide for applications and appeals to modify or discharge the affordable housing elements of s106 agreements to make developments viable which is now in force. CLG issued guidance on the 26 th April on form and content of application and appeals, including viability evidence.

19 Viability and CIL Paragraph 175: Where practical, Community Infrastructure Levy charges should be worked up and tested alongside the Local Plan. The Community Infrastructure Levy should support and incentivise new development CLG - CIL Guidance: Charging authorities should set rates that will not put the overall development across their area at serious risk CLG - CIL Overview: Charging authorities will need to strike an appropriate balance between the desirability of funding infrastructure from the levy and the potential effects of the imposition of the levy upon the economic viability of development across their area.

20 Yorkshire and Humber CIL Update Consultation has ended on 4 draft charging schedules including: Wakefield Maximum for Residential 100 per sqm Leeds Maximum for Residential 90 per sqm Hambleton Maximum for Residential 85 per sqm Sheffield - Maximum for Residential 100 per sqm

21 PART B -VIABILITY

22 What is viability?

23 A definition of viability An individual development can be said to be viable if, after taking account of all costs including central and local government policy and regulatory costs and the cost and availability of finance, the scheme provides a competitive return to the developer to ensure that development takes place and generates a land value sufficient to persuade the landowner to sell the land for the development proposed. If these conditions are not met, a scheme will not be delivered. (Local Housing Delivery Group, June 2012)

24 The Residual Land Value (RLV) Approach to Assessing Viability Gross Development Value (GDV) Total Costs (incl. Profit) = Residual Land Value (RLV) HCA Toolkit is an RLV model Recommended for use by LPAs in Steve Quartermain CLG letter (March 2011)

25 What goes into a viability assessment?

26 Viability in the Planning Process

27 Plan Making Is the plan deliverable? Cumulative impact of policies Delivery risk vs. sustainable plan policies Failure to consider viability places local plan at risk of not being found sound

28 Decision Taking Considerable debate around viability Need for greater commercial realism Economic benefits and tax revenue from additional housing v no development Need to de-mystify viability assessments Arrive at a mutually beneficial position

29 Reviewing S106 Planning Obligations in changed economic circumstances Section 106 Affordable Housing Requirements: Review and Appeal Unrealistic Section 106 agreements negotiated in differing economic conditions can be an obstacle to house building. The Government is keen to encourage development to come forward, to provide more homes to meet a growing population and to promote construction and economic growth. Stalled schemes due to economically unviable affordable housing requirements result in no development, no regeneration and no community benefit. Reviewing such agreements will result in more housing and more affordable housing than would otherwise be the case. (CLG, April 2013)

30 Case Study: South East Northumberland 275 unit scheme - greenfield site, weak market area Policy requirement for 30% affordable housing Viability of two book-end scenarios used to inform early discussions 30% affordable housing: Unviable 0% affordable housing: Viable Tested viability at 5% increments to identify viability tipping point Permission granted with 15% affordable provision

31 Key Issues and Best Practice

32 Key Issue Determining Values Significant geographical and temporal variation Comparable developments a useful starting point Reality check using industry input and validation Avoid reliance on asking prices Need for cautious and transparent assumptions

33 Key Issue Determining Costs Build Costs = Building Cost Information Service External Works = +15% (approx). Contingency = +5% Site Specific Costs (and abnormals )? S106/Affordable Housing / CIL? Development Fees = 10% Site Acquisition (agent & legal fees 1.75% + stamp duty 4/5%) Sales & Marketing = 6% Finance Costs = 3-5% above LIBOR Developer s Profit

34 Key Issue Developer Profit most developers will target a return of around 20% per annum or more on their investment (Planning Advisory Service Viability Handbook and Exercises (January 2011)) banks will not provide funding for a scheme that shows a profit level of less than 20% on gross development value " (Stockton Council Economic Viability of Affordable Housing Requirements Report (BNP Paribas, August 2009) using an average figure of 20% [profit] across the city is not unreasonable or unrealistic (Bristol City Council Draft CIL Charging Schedule, Examiner s Report (July 2012)) a [profit] figure of 20%, which is at the lower end of the range, is reasonable (Shinfield, Reading Appeal Decision (October 2012))

35 Key Issue Developer Profit What drives the 20% requirement? Accessing finance: risk vs reward Uncertain housing market post-recession No fixed point of sale, no fixed value, no certainty over costs Competition for investment: competitive returns

36 Key Issue What is an appropriate Threshold Land Value? the landowner holds the key to any decision as to whether development takes place unless landowners can be persuaded that it is worth their allowing their site to be (re)developed then they will not make the decision to allow their land to be brought forward and the development land market will not function. (PINS Report into Barking and Dagenham EVA)

37 Key Issue What is an appropriate Threshold Land Value? In simplistic terms the viability of a site is whether or not it is viable for the landowner to bring it forward for development It has nothing whatsoever to do with the viability to a developer because his viability i.e. his profit, is already built into the calculation. If the costs of the scheme compared to the revenues are so great that the landowner will not accept the price that he is being offered for his site, then development will not take place. (PINS Report into Eden Valley EVA)

38 Key Issue What is an appropriate Threshold Land Value? Brownfield land / redevelopment Analysis of Existing Use Value (EUV) Comparator sites, VOA data etc RLV must exceed EUV to incentivise delivery we recommend that a premium hurdle rate uplift of 25% on Existing Use Value is assumed to realise development on brown land (Cumulative Impacts of Regulations on House Builders and Landowners CLG (June 2011))

39 Key Issue What is an appropriate Threshold Land Value? Greenfield / undeveloped sites Low EUV (typically agricultural land) BUT landowners still need to be incentivised Minimum price thresholds we would recommend that minimum land value requirements of 200k per acre ( 500k per ha) (gross) are assumed for release of greenfield land Cumulative Impacts of Regulations on House Builders and Landowners CLG (June 2011) based on experience, most landowners would not be prepared to sell at figures for between 10 and 20% of GDV (Planning Inspectorate Report on the Economic Viability Appraisal for Eden Valley Council) we have taken a figure of 25% of Gross Development Value for the level at which Residual Land Value may need to reach in order to incentivise the landowner... (Darlington BC Planning Obligation Scenario Testing (January 2012))

40 Case Study: North Yorkshire C.200 unit scheme allocated housing site CS target of 50% AH. BUT actual provision determined through negotiation, taking into account viability and the economics of provision Application refused insufficient AH Public Inquiry April 2013 key differences in appraisals: Developer profit: 15% vs 20% (on GDV) Threshold land value: 160k per acre vs 250k per acre Build costs: c. 3m difference in costs Professional fees and contingency

41 Conclusions

42 How can we do viability better? We need To understand the market A shared understanding of the development process: The motivations for developing Commercial considerations / realism A collaborative and transparent approach to viability assessment An understanding of the implications for the viability of development associated with interventions made through the planning system

43 Outcomes and Benefits Doing viability well means: More certainty for developers and LPAs Avoids re-opening policies for negotiation after permission granted (reviewing S106 etc) The Local Plan is sound / development is built!

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