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VIABILITY – A LOCAL AUTHORITY PERSPECTIVE

Jim CliffePlanning Obligations Manager

Bristol City Council

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Areas covered

Implementing CILApproach to site specific viability appraisals Why the affordable housing policy compliant percentage is not always achieved

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CIL – Implementation

Keep it simple – there are not many benefits to making CIL complicated but there are dis-benefits:

Higher risk of successful challenge It will almost certainly take longer to implement Higher chance of errors in calculating, monitoring

and enforcing CIL

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CIL - Implementation

Don’t be greedy – be generous with developers costs, cautious with sales values, and leave a significant viability buffer

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CIL - Implementation

When setting residential CIL rates we followed the following mantra “Our CIL rates will be set at a level that will not make residential development that is currently policy compliant and viable, unviable” …..….. and we didn’t worry too much about residential development that was unviable even with no CIL

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CIL - Implementation

Think very carefully about how to deal with strategic sites – they may well need a lower or even a £nil CIL rate due to the level of on-site infrastructure required. Swindon and South Gloucestershire are good examples of Councils that have taken this approach

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What the inspector wants

Development type Maximum viable CIL

rate

Proposed CIL rate

CIL as % of maximum viable rate

CIL as % of costs

CIL as % of GDV

Inner Zone Residential

£130 £70 54 2.2 1.9

Outer Zone Residential

£90 £50 56 1.6 1.5

Retail £250 £120 48 4.5 3.4

Student Accommodation

£220 £100 45 3.2 2.8

Hotel £160 £70 44 1.9 1.8

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CIL viability information – how it helps you

Your CIL viability study will provide large amounts of information on costs and values that you can use as a reference point in dealing with site-specific viability appraisals.

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Other viability information available due to CIL

Once CIL is implemented you need access to BCIS data, which provides up to date costs dataSales prices are available on the Land Registry web site, and for all consents granted after CIL was implemented, the GIA is known. Therefore you can start building up a dataset of sales values per square metre

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Site Specific Viability – Issues for Bristol

We had no structured process in place for dealing with viability appraisals

We spent lots of time and resource disputing viability appraisals, whilst making little progress towards resolving differences

We sometimes forgot the bigger picture and spent too much time and effort focussing on the cost of taps and flooring

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3 Stage approach – Stage 1 Identify issues of concern Commission consultant Consultant assesses viability appraisal and reports

back to Council – no meetings with applicant at this stage

If necessary, consultant undertakes their own appraisal based on nil affordable housing, to see what excess there is that could be applied to affordable housing

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3 Stage approach – Stage 1

If the consultant agrees with the level of affordable housing the applicant claims can be afforded the issue is concluded.

Stage 1 is completed within a month

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3 Stage approach – Stage 2

Meetings held with applicant to try to understand areas of difference and see if an agreed position can be reached Stage 2 has a cut off time of a month

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3 Stage approach – Stage 3

If agreement cannot be reached, the Council offers independent arbitration to look solely at the areas of disagreement, and agrees to accept the view of the arbiter

Council and applicant each put their case to the arbiter in writing and have the option of one meeting with the arbiter

Stage 3 is completed within a month

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Benefits of the staged approach

We don’t spend months arguing about areas of difference whilst making no progress

Applicants know where they stand Helps the Council deliver consents in a timely

manner Offer of arbitration lessens the chances of

appeals on viability grounds

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Why do we not always secure policy compliant levels of

affordable housing? Challenging sites Government Initiatives Impact of RICS Professional Guidance Rising GDV often goes hand in hand with rising

Site Values and Build Costs

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Brownfield SitesUrban brownfield sites often have high Existing Use Values, which translates to high Site ValuesThere is less of an uplift in value on such sites for residential uses.Development costs tend to be higher due to the constrained nature of the sitesTherefore there is less potential to secure affordable housing from brownfield sites

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Greenfield Sites Suburban and rural greenfield sites often have

low Existing Use Values. There is more of an uplift in value on such sites

for residential uses. Sites tend to be large and less constrained

meaning that there are economies of scale and fewer abnormal design costs, therefore costs tend to be lower

Consequently there is more potential to secure affordable housing from greenfield sites

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Government Policy / InitiativesThe following have all had an adverse impact on the ability of Local Authorities to secure affordable housing:National Planning Policy Framework (2012)Section 106 BA (2013)Vacant Building Credit (2014)

Also, and most significantly:RICS Professional Guidance (Financial Viability in Planning) (2012)

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Market Value / Site Value

Market Value = the price agreed for the land between a willing buyer and a willing sellerSite Value = Market Value but taking account of Development Plan Policies

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Impact of RICS Guidance – General Hospital example

Had the General Hospital viability been before publication of the RICS Guidance, the Site Value would have been approx £2,500,000 (Existing Use Value of £2,000,000 plus £500,000 incentive for the landowner to bring the site forward).

As it was after publication of the RICS Guidance, the Site Value was approx £6,250,000, as that was the price paid for the site, and other bidders were prepared to pay a similar price.

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Rising Residential ValuesIncreasing residential values help viability but:Profits are based on value so the actual profit also increasesBuild Costs are also increasing (up 13% nationally in the past two years)Fees and contingency are based on a percentage of costs so these also increaseLand is changing hands for higher prices (up 15% nationally in the past two years) as house-builders are competing for a scarce resource

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Hypothetical ExampleScheme value increases by 17% / Site value

increases by 15% / Build costs increase by 13%

2013 2015

Scheme Value £2,000,000 £2,340,000

Build Costs £1,000,000 £1,130,000

Profit (20% of Value) £400,000 £468,000

Professional Costs (10% of Build Cost)

£100,000 £113,000

Contingency (5% of Build Cost)

£50,000 £56,500

Residual Land Value £450,000 £572,500

Site Value £300,000 £345,000

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General Observations Flatted developments may deliver less

affordable housing than estate developments as they contain approx 20% unsellable floorspace (lift shafts, stairwells, corridors etc) and have higher build costs

Experience suggests it is possible in the current market to secure 30% affordable housing on suburban estate developments on clean sites, but in and around the City Centre viability is much more challenging