Viability is not dealt within the NPPF, it is dealt with separately in the NPPG.
The draft NPPF stated that “where proposals for development accord with all the relevant policies in an up-to-date development plan, no viability assessment should be required to accompany the application”. The revised 2018 Framework removes this measure and states at paragraph 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”
Viability should be Assessed at Plan Making Stage.
Previously discussions and considerations of viability were undertaken at the decision-making stage which may have led to delays and local authorities not securing the level of affordable housing and infrastructure they required.
The responsibility has now shifted towards local authorities to undertake viability earlier in the process to ensure that they set appropriate levels of infrastructure requirements. This will require greater co-operation between landowners, developers and local authorities to undertake meaningful discussions and agree what is considered viable. At decision making stage, where matters have already been agreed there may be less delays in agreeing matters of viability which wont slow down the determination of applications.
Costs and Requirements for Affordable Housing and Infrastructure Should be Set At A Level That Does Not Require Further Assessment At Decision Making Stage.
There may need to be more negotiation between landowners, developers and local authorities earlier in the plan making process to ensure that requirements for affordable housing and infrastructure are set at a level that does not undermine overall delivery of the site.
The Council may set out within their plans when a viability assessment may be required.
The PPG sets out that viability should be addressed at plan making stage, but states that local authorities can set out when viability assessments may be required to support planning applications.
The Price Paid for Land is not a Justification for Failing to Accord With the Relevant Policies in a Development Plan.
This played out in Parkhurst Road Limited v Secretary of State for Housing Communities and Local Government & London Borough of Islington. Case No: CO/3528/2017. We discuss this below:
Parkhurst Road Limited v Secretary of State for Housing Communities and Local Government & London Borough of Islington
The key consideration within the High Court was the price paid by the developers and the approach taken to assessing viability to justify the minimal amount of affordable housing. The appellants and the Council disagreed on the benchmark land value as the appellants used the purchase price as an acquisition cost leading to profit levels being below normal target values.
Islington disagreed with this using the same methodology excluding the site acquisition cost. The Council carried out a series of residual valuations inputting alternative affordable housing proportions of 50%, 40% and 32% which produced residual land valuations for the site of £4.98m, £7.32m and £9.35m respectively. They contended that the price which Parkhurst Road Ltd had paid for the site was excessive since it did not properly reflect the policy requirement to maximise the affordable housing component.
The viability assessment of the site has never been made public, but it is of direct relevance as its part of the weight applied to the development proposals.
When reading Justice Holgate’s decision, there are criticisms of the wider approach taken to viability:
“where an applicant seeking planning permission for residential development in Islington proposes that the “maximum reasonable amount of affordable housing” is lower than the borough-wide 50% target on viability grounds, it is his responsibility to demonstrate that that is so”
Justice Holgate also recognised the inherent tension between decision makers and developers stating that:
“According to the basic principles set out in the NPPF and the NPPG, it is understandable why a decision-maker may, as a matter of judgment, attach little or no weight to a developer’s analysis which claims to show a “market norm” for BLV by doing little more than averaging land values obtained from a large number of transactions within a district…
…On the other hand, it is understandable why developers and landowners may argue against local policy statements that BLV should simply conform to an “EUV plus a percentage” basis of valuation, especially where the document has not been subjected to independent statutory examination prior to adoption. Some adherents appear to be promoting a formulaic application of “EUV plus.”
Justice Holgate suggests that RICS could consider revisiting the 2012 Guidance Note, perhaps in conjunction with MHCLG and the RTPI, to address any misunderstandings about market valuation concepts and techniques to address the “circularity” issue and any other problems encountered in practice over the last 6 years, to help avoid protracted disputes.
The Guidance Removes Flexibility in Considering Policy Requirements
The previous Guidance stated that ‘where the viability of a development is in question, local planning authorities should look to be flexible in applying policy requirements wherever possible.
This hard-line approach allows decision makers to decide an application on whether it achieves the full policy requirements or not.
A Standard Approach to Viability where Previously it was Accepted there was no Standard Answer to Viability
Again the flexible approach to viability has been removed in favour of a standard approach to be taken across all sites. The intention is probably to speed up delivery as all matters will be assessed, although the same approach cannot be used for different site characteristics such as brownfield and greenfield sites. If the standardised approach doesn’t work for a site, the Council may have to look at alternatives until one fits the approach.
Land Value Calculated on Existing Use Value plus a Premium
The Guidance sets out the approach to be taken to Benchmark Land Value, again to give decision makers more support in assessing development viability.
Premium is described in broad terms as the minimum price a rational landowner would be willing to sell their land, although there is likely to be further debate over what a premium should be and this debate is likely to delay the overall Local Plan process. .
A Return of 15-20% of Gross Development Value
The Draft PPG referred to 20 per cent return which has been the accepted level of return.
The PPG states that a lower figure:
‘may be more appropriate in consideration of delivery of affordable housing in circumstances where this guarantees an end sale at a known value and reduces the risk’
Viability Assessments to be Publicly Available.
A Viability Assessment will only be kept confidential in exceptional circumstances, and it will be down to the applicant to justify the case for confidentiality. Within the Parkhurst case, the decision refers to the Viability Assessment never being provided.
The revised approach to viability whilst potentially aiming to speed up the decision making process, may have the unintended consequences of delaying the plan making process as Local Authorities, developers and landowners grapple with the revised approach to infrastructure costs and negotiate the best scenarios for all parties.