Sefton Council VIABILITY IN PLANNING Wednesday 23 April 2014 - - PowerPoint PPT Presentation

Sefton Council

VIABILITY IN PLANNING Wednesday 23 April 2014

keppie massie

www.keppiemassie.com

Overview

• Introduction
• What is Viability?
• Financial Appraisals: Key Variables
• Worked Example
• Relevance to Sefton
• Conclusions

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Introduction

Importance of Viability in Planning

How it is being considered by LPAs

• Policy
• Application specific

Changing times

• NPPF
• NPPG
• New Local Plans
• CIL
• Application specific - Growth and Infrastructure Act
• Planning Mediation Panel

Purpose of the Economic Viability Assessments

Borough Wide

• Introduction of New Local Plans and CIL
• The NPPF emphasises the importance of delivering 'sustainable

development'

• EVA aims to test whether policy requirements and allocations are

deliverable by considering the Viability of development Case by Case

• Can an application development meet requirements

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• Purpose of the EVA
• The National Planning Policy Framework (NPPF) (paragraph 173) states

that "Pursuing sustainable development requires careful attention to viability

and costs in plan-making and decision-taking. Plans should be

• deliverable. Therefore, the sites and 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, such as requirements for affordable housing standards, infrastructure contributions or other requirements 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"

• Greater emphasis therefore on the 'deliverability' of schemes

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What is Viability?

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Guidance

RICS Guidance Note `Financial Viability in Planning'

What is viability? "an objective financial viability test of the ability of a development project to meet its costs including the cost of planning obligations, whilst ensuring an appropriate site value for the land owner and a market risk adjusted return to the developer in delivering that project."

Guidance

'Viability Testing Local Plans' - Local Housing Delivery Group

"The approach to assessing plan viability should recognise that it can only provide high level assurance that the policies within the plan are set in a way that is compatible with the likely economic viability. It cannot guarantee that every development in the plan period will be viable, only that the plan policies will be viable for the sufficient number of sites upon which the plan relies in

• rder to fulfil its objectively assessed needs."

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What is Viability?

• Financial calculation based on the development
• Considers value of completed development
• Considers costs of completing the development
• Result is a calculation of whether development is economically viable

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What is Viability?

• Financial calculation can either be

A Residual Valuation A Development Appraisal

What is Viability?

Policy Purposes

Gross Development Value (value of the completed development scheme)

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Cost of Development (inclusive of build costs, fees, finance, land cost)

Less Other Costs (inclusive of existing planning obligations) Less

Developers Target Profit = Development Surplus or "Headroom"

What is Viability?

Approach to Testing for Policy Purposes

• Calculate the development surplus or 'headroom'
• Establish a baseline position
• Test the effect of policy options
• Consider effect of policy options on 'headroom'

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What is Viability?

Recap

• Viability comprises the ability of a development project to meet its costs

including the cost of planning obligations

• Financial Calculation based on the anticipated value of the completed

development less the development costs

• Can be done either within a Residual Valuation or a Development Appraisal

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Financial Appraisals: Key Variables

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Financial Appraisals

Key Variables include:-

• Gross Development Value
• Construction Costs
• Development Programme
• Other Costs
• Acquisition Costs
• Developers Profit
• S106 and CIL

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Financial Appraisals: Key Variables

Gross Development Value

• Scheme quantum and mix
• Location
• Site characteristics
• Affordable provision (if any)

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Financial Appraisals: Key Variables

Construction Costs

• Consideration of actual scheme characteristics
• Construction costs
• Infrastructure - essential
• Development abnormals
• Code for Sustainable Homes/Building Regs
• SUDs
• Contingency

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Financial Appraisals: Key Variables

Development Programme

• Interest Rate Used
• Development Programme
• Sales Programme

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Financial Appraisals: Key Variables

Other Costs

• Professional Fees
• Marketing and Sales Costs

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Financial Appraisals: Key Variables

Acquisition Costs/Land Value

• Market Value
• Historic Purchase Price
• Existing Use/Alternative Use Value

Financial Appraisals: Key Variables

Developer's Profit

• Revenue
• Cost
• Risk

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Financial Appraisals: Key Variables

S106 and CIL

• Open Space
• Education
• Affordable Housing
• Design Standards
• Renewables
• Community and Health Facilities
• Transport and Highways
• Site specific S106 requirements
• CIL

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Worked Example

Options if Unviable

What does it show?

• If a scheme is unviable, either the Land Value or Developers Profit will be

below the required level for either the site to be released or for the

developer to proceed Options therefore include:-

• Reduce the planning requirements so the scheme is in balance
• Assess what level can be afforded
• Re-run the appraisals
• Negotiations with developer
• Agree revised requirements

Options if Unviable

Worked Example

GDV

—

6x houses @ £200,000 each Less Costs 1,250 sq.ft GIA E1.00psf x 6 houses

£1,200,000

£

750/ 000 Contingency @ 5%

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37,500 Professional fees @ 10%

E

75,000 Finance on land/build costs (50% over 3 mths)

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13,125 Agents Fees @ 2%

E

24,000 New road access to site

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50,000 Community Centre Contribution

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50/000 Land Value £

60,000

E 1,059,625 Residual Profit

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140,375

• £140,375 amounts to a developers profit of 11.7%

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Options if Unviable

Worked Example

• Site requires a new road access at £50,000
• Also requirement for a E50,000 contribition to a new Community Building
• Including these elements the scheme generates a profit of 11.7% of GDV
• This is too low for a developer to proceed with the development, in this

instance we would expect a developers profit requirement of 15.0%

• However, if the contribution to the Community Building was removed, the

profit increases to £190,375 or 15.9% of GDV and the scheme is viable

• Alterntively removal of the cost of the new road access would have the

same impact however the development would not be able to proceed as this is essential infrastructure

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Option if Unviable

What Next

• Assessment of viability is not the end of the process
• Need to consider

— What planning requirements are needed — When these are to be paid/undertaken — Should the scheme be reappraised

• Draft S106 agreement

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Relevance to Sefton

Relevance to Sefton

Policy

• Local Plan Policies and Site Allocations
• Affordable Housing
• Sustainability and low carbon - Code/BREEAM
• Design Standards
• Infrastructure Requirements and Funding
• S106 and CIL

Relevance to Sefton

Policy

• Limited Viability in many areas
• Finite pot of money for policies
• Implications for land value
• Hierarchy of policies and limitations
• Development enabling infrastructure
• Commercial development
• Often viable only with funding support

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Conclusions

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Conclusions

What are we seeking to achieve?

• Sustainable Development
• Maximise Developer Contributions in accordance with Planning Policy

Requirements

• Not to Impede Development
• Delivery of Local Plan objectives

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Conclusions

• Development viability in planning fundamental
• Changing planning world
• Focus of NPPF on delivery of development
• Impact of Local Plans and policy obligations on development
• Introduction of CIL
• Give consideration to emerging and current policy asks and understand

the implications of Viability

Sefton Council

Any further questions please contact

Ged Massie

Partner

0870 705 0001

keppie massie

www.keppiemassie.com