Development Viability Assessment Consultation - Methodology, Assumptions 19 th February 2020
Agenda 2019 NPPF, PPG and Guidance Methodology – Harman Guidance / RICS Guidance / PPG Main Assumptions – Prices – Costs – Commercial prices – Modelling The Viability Test Moving Forward
Key issue • Delivery of the emerging Local Plan – Affordable Housing v Developer Contributions – Environmental Requirements and Building Standards • Review of CIL • Reduced scope for viability testing at Development Management. – Based on ‘ changes since the plan was brought into force’ and ‘should be based upon and refer back to the viability assessment that informed the plan’
Key issue • Delivery of the emerging Local Plan – Affordable Housing – Developer Contributions • Scope for CIL
The Old
NPPF / PPG Consultation (March 2018)
Ch-ch-ch-ch-changes Ch-ch-ch-ch-changes Turn and face the strange Ch-ch-changes Don't want to be a richer man Ch-ch-ch-ch-changes Turn and face the strange Ch-ch-changes There's gonna have to be a different man Time may change me But I can't trace time
The new ...
The Changes
... and newer
2019 NPPF 57. Where up-to-date policies have set out the contributions expected from development, planning applications that comply with them should be assumed to be viable. It is up to the applicant to demonstrate whether particular circumstances justify the need for a viability assessment at the application stage. The weight to be given to a viability assessment is a matter for the decision maker, having regard to all the circumstances in the case, including whether the plan and the viability evidence underpinning it is up to date, and any change in site circumstances since the plan was brought into force. All viability assessments, including any undertaken at the plan-making stage, should reflect the recommended approach in national planning guidance, including standardised inputs, and should be made publicly available.
The big change... 2012 NPPF PPG 2018 / 2019 173 10-009-20190509 ... To ensure viability, the costs of any ... ensure policy compliance and requirements likely to be applied to optimal public benefits through development, such as requirements for economic cycles... affordable housing, standards, 10-010-20180724 infrastructure contributions or other requirements should, when taking account and the aims of the planning system of the normal cost of development and to secure maximum benefits in the mitigation, provide competitive returns to a public interest through the granting of willing land owner and willing developer to planning permission. enable the development to be deliverable. 174 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
2012 NPPF – Footnote 11 2019 NPPF – glossary 11 To be considered deliverable, sites Deliverable : To be considered deliverable, sites for housing should be available now, offer a should be available now, offer a suitable suitable location for development now, and be location for development now, and be achievable with a realistic prospect that housing achievable with a realistic prospect that will be delivered on the site within five years. In housing will be delivered on the site within particular: five years and in particular that • a) sites which do not involve major development of the site is viable. Sites development and have planning permission, with planning permission should be and all sites with detailed planning considered deliverable until permission permission, should be considered deliverable until permission expires, unless expires, unless there is clear evidence that there is clear evidence that homes will not schemes will not be implemented within be delivered within five years (for example five years, for example they will not be because they are no longer viable, there is viable, there is no longer a demand for the no longer a demand for the type of units or type of units or sites have long term sites have long term phasing plans). phasing plans. • b) where a site has outline planning permission for major development, has been allocated in a development plan, has a grant of permission in principle, or is identified on a brownfield register, it should only be considered deliverable where there is clear evidence that housing completions will begin on site within five years.
2014 PPG 10-001 2019 PPG 10-001 ... plans should be deliverable and that the ...policy requirements should be informed sites and scale of development identified by evidence of infrastructure and in the plan should not be subject to such a affordable housing need, and a scale of obligations and policy burdens proportionate assessment of viability that that their ability to be developed viably is takes into account all relevant policies, threatened.... and local and national standards, including the cost implications of the Community Infrastructure Levy (CIL) and section 106... 2019 PPG 10-002 It is the responsibility of plan makers in collaboration with the local community, developers and other stakeholders, to create realistic, deliverable policies. Drafting of plan policies should be iterative and informed by engagement with developers, landowners, and infrastructure and affordable housing providers.
PPG Viability in plan making • 10-003 – based on ‘Typologies’ • 10-004 – use average costs and values • 10-005 – strategic sites individually • 10-006 – consultation
PPG Standardised inputs • 10-010 – viability helps to strike a balance between the aspirations of developers and landowners, in terms of returns against risk, and the aims of the planning system to secure maximum benefits in the public interest through the granting of planning permission • 10-011 – GDV – average figures can be used, with adjustment to take into account land use, form, scale, location, rents and yields, disregarding outliers in the data
PPG costs • 10-012 – ‘should be based on evidence which is reflective of local market conditions’ – Build costs – from BCIS – Abnormals – in benchmark land value – Infrastructure – in benchmark land value – Total policy costs – all including CIL – Finance – Fees – Contingency – relative to risk and developer’s return
PPG Land Value 10-013 Benchmark Land Value (BLV) = Existing Use Value (EUV) ‘plus a premium for the landowner’
PPG BLV – 10-014 • Based on EUV • Allow for a premium to the landowner • Reflect abnormal costs, site specific infrastructure and fees • Be informed by market evidence from policy compliant schemes – In plan making, the landowner premium should be tested and balanced against emerging policies.
PPG Landowners’ Premium 10-016 • The premium should provide a reasonable incentive for a land owner to bring forward land for development while allowing a sufficient contribution to comply with policy requirements.
PPG Landowners’ Premium • a reasonable premium to the landowner • an iterative process informed by professional judgement • best available evidence informed by cross sector collaboration
PPG Developer’s Return • 10-018 – For the purpose of plan making an assumption of 15-20% of gross development value (GDV) may be considered a suitable return to developers in order to establish the viability of plan policies. … A lower figure may be more appropriate in consideration of delivery of affordable housing …
Abnormal and IDP Costs • Normal abnormals v abnormal abnormals • Site Infrastructure Costs ‘These costs should be taken into account when defining benchmark land value’. Are reflected in a lower land price! But when is it too low?
‘New’ / Current issues – for this project • Cumulative impact of policy • Greater emphasis on plan making stage – only include deliverable sites • Reduced scope for viability at application stage • Review CIL • Greater transparency
Harman / RICS
New Mandatory RICS Guidance
RICS Guidance – so what? • mandatory for Chartered Surveyors • with objectivity, impartially and without interference and with reference to all appropriate available sources of information • include instructions • no performance-related or contingent fees • presumption is that a viability assessment should be published in full • a non-technical summary • incudes appropriate sensitivity testing • responsible for sub-contractors / specialists • (value engineering)
Engagement Phases
Methodology • Modelling – Typologies – Residential, employment, retail • Appraisals – Residual Value v EUV Plus – Additional profit 29
Standard Viability Test - Residual Value STEP 1 Gross Development Value (The combined value of the complete development) LESS Cost of creating the asset, including PROFIT (Construction + fees + finance charges) = RESIDUAL VALUE STEP 2 Residual Value v Existing / Alternative Use Value 30
Gross Development Value All income from a Scheme CIL, Aff Housing, enviro, design, etc Construction Fees Profit Land Site Remediation Design Developers Existing / Abnormals Engineer Builders Alternative S106 Sales Land Value Etc. Etc. + uplift
Key Assumptions 32
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