Viability for the Housing Forum Thursday 11 th July 2019 Our Team - - PowerPoint PPT Presentation

Development Viability for the Housing Forum

Thursday 11th July 2019

Our Team

• Chris Seeley – Director
• Amelia McCann – Head of Development

What Councils need to build again

• Political leadership & stability
• Campaigns
• Partnerships
• Speed
• Upskilled teams
• New production methods
• Community building skills

Viability

Who is viability most important to? Unless it is affordable it is not viable!

Taking a Commercial Approach

Example Viability Model

1) GDV Market Sales 3 x 2 bed bungalows @ £235,200 ea £705,600 3 x 3 bed det @ £275,000 ea £825,000 2 x 3 bed det @ £275,000 ea £550,000 3 x 4 bed det @ £400,000 ea £1,200,000 3 x 4 bed det @ £450,000 ea £1,350,000 2 x 5 bed det @ £500,000 ea £1,000,000 17 £5,630,600 Shared Ownership 2 x 2 bed bungalows @ 70% OMV (£164,640 ea) £329,280 2 x 2 bed semi @ 70% OMV (£161,280 ea) £322,560 £651,840 GDV £6,282,440 2) Costs Base construction inc. garages £2,929,405 Abnormals £210,000

• Prof. fees @ 8% of construction

£251,152 Sales legals @ 0.5% of GDV £31,412

• Stat. fees @ 1.1% of construction

£34,533 Sales/marketing @ 2% of market units GDV £112,612 Transaction cost on affordable @ 1% £6,518 Contingency @ 5% of construction and related fees £171,254 Planning obligations £271,000 Finance costs £270,000 £4,287,886 3) Profit 20% of market GDV £1,126,120 6% of affordable construction (£481,962) £28,918 £1,155,038 4) Residual Land Value GDV = £6,282,440 Less Costs = (£4,287,886) Less Profit = (£1,155,038) £839,516

And who is doing that?

Reliance on Grant Funding

BUT… the social housing model is different – we expect to lose money in the early years

What do we mean by Affordable Housing?

We also expect to subsidise our new homes What subsidy level is required?

• A 2 bed house of

78m² GIA

• Land costs £45,000
• Construction costs

£1,375/m²

• On-costs are 12%

Option 1 – Affordable Rent (rent = £95pw) Land £45,000 Works £107,250 On-costs £18,810 Total £175,560 Deduct Grant £39,000 Loan Supportable by Rent £77,000 Subsidy Required £40,050

What do we mean by Affordable Housing?

And it is not only rent……

Option 2 – Shared Ownership (OMV = £225,000, rent @ 2.75% retained, 40% sold) Additional On Costs for Sale, so £185,560 Deduct: Sale Proceeds £76,000 Deduct Grant £29,000 Loan Supportable by Rent £45,000 Subsidy Required £35,560

How to calculate cash to fund the loan

• Rental Income
• Less Management Costs
• Less Maintenance Costs
• Less Long Term Asset

Costs (Sinking Funds)

• Less Voids
• Less Bad Debt

So how do you know a scheme is viable?

• It is worth more than you are paying for

it!

• It cumulatively breaks even over a

number of years

• It has a positive NPV (or at least an NPV

within your approval limits)

• It fits your investment criteria!

How do you know - 2

• Proval
• Pamwin
• Abovo
• Argus
• Landval
• Bespoke

Viability measures

• Net present value (NPV) - is the difference between the present value of cash inflows and

the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyse the profitability of a projected investment

• r project.
• Discounted Cash Flow (DCF) - analysis finds the present value of expected future cash

flows using a discount rate.

• The discount rate refers to the interest rate used in discounted cash flow (DCF) analysis to

determine the present value of future cash flows.

• The discount rate is commonly set at your interest rate or more likely 1-2% higher
• Break Even point is when the company has turned a sufficient cumulative profit (or more

specifically, the cumulative cash) to cover the initial investment.

• The Internal Rate of Return (IRR) is the Discount Rate which returns a zero NPV.

Based on 20 – 2 Bed Semis

On-Costs Superstructure (OSM) Superstructure (On-Site) Groundworks Development Cost/House £132,200 (£1,590/m²) £114,200 (£1,376/m²) £112,200 (£1,352/m²) £114,600 (£1,381/m²)

Build Costs – Benchmarking

Routes to Build

• Tender
• Package Deal
• Developer Lead
• Own (In-House) Contractor
• In-House Contract Management

Working with the Private Sector

• S106 opportunities
• Joint ventures
• Land lead
• Land and build package deals

S106 Opportunities

• Business aspirations for S106 ?
• Direct developer negotiations
• Via agent negotiations
• Value of S106!

Joint Ventures

• Usually on larger or portfolio of

sites

• Mutual objectives
• Trusted relationship
• Shared risk and reward

Land Opportunities

• Resurgence in HA’s buying land
• Competitive market
• Managing land-owner expectations
• Due diligence
• Total control of

timescale and specification

Land & Build Package Deals

• Easier option!
• Be clear on your

expectations

• Due diligence
• Value for money?