The level of public goods to be provided alongside development in the form of affordable housing and payments towards schools, health, highways Community Infrastructure Levy (CIL) and open space (tariff payments) is often challenged by developers in the name of ‘viability’. Providing public goods is expensive; a scheme for 150 houses can generate education payments of £1.2m upwards, with another half a million on payments towards health, CIL and open space. This is before the direct costs of roads, main services and ground conditions are taken into account. A standard 30% affordable housing requirement will reduce the market housing element of a 150 house scheme to 105 homes. This means that all the infrastructure and tariff costs are shouldered by a smaller number of houses than the planning permission indicates.
Viability appraisals have been used as a way for developers to reduce these costs by arguing that the costs of developing a site are too great to allow the full range of public goods to be provided. Often it is the ‘abnormal costs’ – the de-contamination of land, or dealing with difficult topography which can make a site less viable. However issues of land/site value can come into play.
The approach to dealing with viability appraisals has varied across the country and this has fuelled public concern that developers are making money without providing the public goods that a community can rightfully expect. The government has reacted to these concerns in its updated National Planning Policy Framework (NPPF) by attempting to standardise the method of calculating viability.
The starting point is that councils should set out their requirements for public goods in their local plans but in a way that does not undermine deliverability. Planning applications that comply with the plan should be considered as viable. This means that at the local plan examination stage, sites that get through examination as allocations are considered to be viable.
The value of land should have regard to development plan policies. This means that viability appraisals should be undertaken at the plan making stage using a new standard approach. The price paid for a site is not a relevant justification for failing to comply with the development plan and hope value should also be dis-regarded.
For existing allocated sites in plans where viability was not fully considered at the plan making stage the starting point for considering land value is ‘existing use value plus’. An agricultural greenfield site could have an existing use value of perhaps £12,000 per acre. For a brownfield former mining site this could be zero as the site contains liabilities. The ‘plus’ is a premium for the landowner, a profit to the developer of perhaps 15 -20%, abnormal costs and market evidence based on policy compliant schemes in the locality. The premium for the landowner ‘should reflect the minimum return which it is considered a reasonable landowner would be willing to sell their land’. This is further clarified in the Planning Practice Guidance (PPG) which states “The premium should provide a reasonable incentive for a landowner to being forward land for development while allowing a sufficient contribution to comply with policy requirements”.
It also requires developers to take an ‘open book’ approach, meaning that all future viability appraisals will be made public other than in exceptional circumstances.
It also means that it is the abnormal costs which become the focus for an appraisal and whether these are in fact reasonable. The public exposure will increase testing and will require LPAs to be seen to consider all aspects raised by the local community.
These measures should improve public confidence in the system and leave less room for manoeuvre for developers. It also means that the value of land is explicit and what the landowner receives is in the public domain. It will be interesting to see how this affects values and the potential political fallout that will follow on from such exposure.
Jonathan Jenkin is Managing Director at Planning & Design Practice