Comment

Viability, Developer Contributions and CIL – welcome to planning’s Wild West

The industry held its breath as the release of the Government’s draft NPPF text, the draft PPG on Viability and parallel Developer Contributions consultation approached. But, who had the luck of the draw?

Government and the press have been firing warning shots over the use of viability assessments to negotiate developer contributions and secure reductions in affordable housing provision.

The industry held its breath as the release of the Government’s draft NPPF text, the draft PPG on Viability and parallel Developer Contributions consultation approached.

But, who had the luck of the draw?

The Good

With the dust settled, some clear positives emerge for deliverability:

• ‘Fixing’ viability at the point of Local Plan adoption would be the Government’s desired ‘silver bullet’, but the reality is a role remains for site-specific viability appraisal as a mechanism to ensure sites are deliverable at the point of decision-making. This represents an acknowledgement from Government that costs and values alter both spatially and chronologically, development sites and proposals are atypical, and new products are also emerging (e.g. BtR or communal living).

• ‘Standardisation’ of viability methodology largely reflects the status quo (for exceptions see ‘The Bad’). Clarification of an acceptable developer’s return at 20% on GDV for open market dwellings and 6% on GDV for affordable dwellings is already widely utilised, but useful ratification. No standardised commercial return as yet.

• Confirmation of exclusion of small sites (1-9 units or <0.5ha) from requirements for affordable housing, reversing the trend of recent Appeal Decisions.

• Expansion of the definition of affordable housing to incorporate Starter Homes and other LCHO products and introducing a requirement for 10% provision on sites of 10+ units (excluding BtR, elderly persons housing or student schemes). Clarity is needed as to whether the 10% requirement is representative of the total dwellings proposed overall or as a proportion of the affordable housing requirement only.

• Recognition that BtR requires a distinct approach to viability testing, the introduction of Affordable Private Rent (APR) as the appropriate tenure for provision of affordable housing within BtR, and the permitting of independent APR management will be welcomed by developers and institutional funds.

• Incorporation of Vacant Building Credit into policy will continue to support viability on brownfield sites.

• Removing the S106 pooling restrictions in certain circumstances (linked to 10th percentile house prices, where CIL is adopted, or where development is planned on multiple strategic sites). A welcome move. Crucially, letting LPAs ‘off the hook’ for CIL in less viable parts of the country.

• Tinkering with the functionality of CIL to address longstanding industry concerns regarding indexation (to be locally reflective of property prices), simplified charging (large sites), exemptions administration and abatements are welcomed. The overhaul of Regulation 123 List requirements is also promising. I’m sat on the fence with the proposed ‘SIT’ – beneficial where CIL is plentiful, but worthless where CIL receipts are limited.

The Bad

Negatives to emerge, both for industry and Local Authorities:

• A renewed Government emphasis on viability evidence underpinning Local Plans. This will need to be substantially more thorough and robust than present practice if it is to achieve the Government’s objective of avoiding later reappraisal of key allocations (i.e. upon application). Cue more costly and time-consuming evidence preparation for Local Authorities. Frankly, this feels pointless.

• A requirement for promoters to supply viability evidence to support allocation at the Plan-making stage. Failure to do so can justify exclusion. Is this for all allocations – even the small ones? This time, cue more costly and time consuming evidence preparation for landowners, promoters and developers.

• The ‘clear as mud’ and inconsistent draft PPG proposals for benchmarking land value (i.e. ‘competitive landowner returns’) in viability testing Local Plan policies, CIL setting and site-specific viability.
  
   
• A lack of clarity on acceptable margins for Starter Homes and other LCHO products, which will attract sales risk. The proposed 6% ‘affordable’ developer’s return is simply not sufficient.
  
   
• Endorsement of publication of viability submissions. Whilst the principle of transparency is rational, perversely this will only lead to ‘sanitisation’ of evidence to avoid prejudicing commercial sensitivities. It might make for simplicity, but it will also result in an increasing departure from market reality.

• The draft PPG provides the ability for LPAs to fix the terms for viability review mechanisms in Local Plan policies for multi-phase and ‘large’ sites. Will LPAs be equitable? Unlikely. At least the drafting does make clear that uplifted returns are to be shared. However, what constitutes ‘large sites’?

• The proposed removal of statutory consultation on CIL setting (and revisiting) and replacement with a statement on ‘appropriate engagement’ by Charging Authorities for consideration at Examination. This will further disadvantage the industry in what is an inadequate process already. It sits diametrically opposed to the Government’s objective to strengthen viability at the plan-making stage.

The Ugly

This is reserved for the Government’s thinly veiled threat to set developer contributions, including affordable housing requirements, nationally without recourse to negotiation.

Whilst not part of the consultation proposals, the Government points to this as a direction of travel. It is unclear whether the intention is to placate the left with a vague future that will never be realised, or if this represents a genuine proposal to centralise control in Whitehall. One thing it isn’t is Localism.

For further information relating to Viability, Developer Contributions and CIL please get in touch with Matthew Spilsbury.

9 March 2018