What Is Development?

Dictionary.com definition

the act or process of developing; growth; progress:

In the property industry, development is improvement. Better use of land, more and better homes, improved environment, infrastructure and built environment. Overwhelmingly positive. Growth. Progress.

Our small role in this process is to identify and trade sites to bring them forward for development. Either by buying or selling. For land owner or developer.

Simple? Well yes and no.

What We Do

Call us old-fashioned, but we still see the identification, research, appraisal, negotiating and trading of land as a holistic professional service.

To provide a full-service acquisition and disposal strategy requires:

1. Market knowledge
2. Market experience
3. Technical expertise
4. Access to internal and external data sources
5. Up-to-date knowledge of national and local planning policy.

The key to successful delivery is understanding the remit. Over 80% of our work is repeat business. We think that is a reasonable endorsement of our service.

And it probably reflects our ethos that deals should be based on investment quality – not our fee targets.

How We Buy the Sites

Exactly how we find sites is a secret but 30 years of dealing in the East Midlands market has allowed us to make one or two good contacts with land owners, developers and agents. So, if you have a site requirement we know where to start.

But that is not usually enough. There are other agents (some good some not so good) with many of the same contacts and a whole raft of “chancers” who see the land market as the pot of gold at the end of the rainbow.

Firstly – we do not “Introduce” sites – we represent our clients in identifying and acquiring sites. To do that we need to know our client and their exact requirement. And they need to know the exact service they will get from us – knowledge, experience, analysis and fully supported advice.

We then apply the requirement to opportunities we see – both on and off-market. Anyone can find land for sale through a simple Google search, but off-market opportunities are harder to find. Our viability work brings us into contact with many developers and development professionals (architects/planners etc.) all of whom are a source of land opportunities. In addition, many of the sites that we provide planning viability advice on will be available for purchase on grant of consent.

How We Sell the Sites

It depends – what does the client want? On or off market?

We do much of our work “off-market” dealing directly with buyers and sellers based on our extensive contacts and requirement data. These deals can be promotion agreements, conditional or unconditional agreements all conducted away from the open market.

We can also do the “full-Monty” marketing exercise. This is often the case where planning permission has recently been granted or where the vendor has a fiduciary duty to demonstrate that full open marketing has taken place, that the opportunity has reached all potential purchasers in the market and, through the sale process, best value has been achieved.

Of course, we have a comprehensive marketing strategy to achieve this supported by the professional and technical expertise to advise on negotiations and ensure the best price is achieved.

Developers

Q: What is a developer?
A: A property hero!

Even a relatively small residential development is likely to incur costs running into millions of pounds. That is the risk the developer takes – those millions are his liability.

His return will come when the scheme is completed, and the developed project is sold – hopefully at a price that will produce a profit. Because profit is a developer’s incentive to take millions of pounds worth of risk.

And the only guarantees are the ones developers give to their banks for funding.

And think on this – if developers don’t build houses – who will? The government stopped building decades ago, so it is down to the developers to build houses of all types – at their risk.

Hero’s.

Landowners

Land owners hold the raw materials without which development can’t happen. But they will only release land if they achieve an acceptable price. Acceptability will depend on the individual land owner.

Selling land for development can be very profitable – although probably not as profitable as the Daily Mail and Morning Star would have you believe (when did those publications last agree?)

Now, development contributes billions of pounds to affordable housing, roads and infrastructure, open space, schools, healthcare, police, fire, libraries, bats and newts. All of which is good because that money is being spent where it is needed.

Direct development land taxes were dropped in 1979 but have been replaced by a myriad of opaque policy and regulation gradually increasing the tax on the land owner by the “backest” of back doors.

If the tax rate was set at an appropriate level, land came forward to be developed. If the tax was too high (100% at one stage) owners didn’t sell and development didn’t happen.

Governments have attempted to tax the increased value of land when sold for development. Development land tax was very straightforward. You sold land for development and got taxed on the uplift.

But that money is from the uplift in land value that arises from the grant of planning permission And so it is a land tax.

And the rate of tax is getting to the stage where landowners will be dis-incentivised to release their land.

It has been effective because the national house-builders are complicit. Taxing land doesn’t affect their business model – it doesn’t matter to them what they pay for land as long as they make their (deserved) margin from the development.

So, they are happy for their schemes to provide affordable housing and Section 106 payments for local infrastructure to support their schemes, because they are not paying for it – the land owner is.

To cement this cosy relationship between the government and the only housing delivery vehicle, there is now the Help to Buy scheme. Most of which seems to go straight to the housebuilder’s bottom line. Persimmon anyone?

Value of Land for Development

What is the value of the site that you are buying or selling? It is not a price per acre. It just isn’t – unless you still believe in drowning witches.

It’s complicated – stupid.

If you’re buying a site for development, you MUST know local policy in minute detail. We can’t help you if you pay too much for a site just because someone else is prepared to. The amount you overpay is wasted money. That is developer risk.

The latest Planning Guidance on viability supporting NPPF 2018 states multiple times and very clearly that paying a price for a site that does not reflect policy required contributions cannot be used as a reason to reduce planning contributions.

If you don’t fully account for policy, you will be throwing money away – literally!

So – if you want to buy a site tell us roughly what you want to develop, and we will provide the land value that a policy compliant scheme will generate.

History of Viability in Planning

The seeds of viability in planning were sown in the “credit-crunch” of 2008. Consented schemes were not being delivered in the radically adjusted economic environment due partly to the burden of planning contributions attached to them. Development had literally stopped.

The government relies on the private sector to deliver its housing targets and needed to stimulate the sector. In the economic climate at that time, it was prepared to sacrifice planning contributions to re-start the market. Viability in planning was born.

This process was encouraged by legislation including NPPF 2012, Section 106 B(a) applications, vacant building credit etc. and viability became mainstream.

The stimulus did work in that previously un-deliverable schemes were developed but, as the market improved, the process was inevitably abused.

Gradually the legislative incentives were removed (some literally overnight) and we are now left with the viability minefield of the NPPF 2019 which clearly intends to remove scheme specific viabilities in all but the most exceptional of circumstances.

Viability Today

You will see many definitions of viability in planning. Some are not very complimentary. Some are very rude.

There are two forms of viability:

1. Plan making – essentially area wide viability studies
2. Scheme specific – the ability of a particular proposed development to meet policy required planning contributions.

We focus on scheme specific work and are guided by the NPPF 2018 (or its latest update) as the current bible of Viability.

But the NPPF is weighted towards plan-making rather than decision taking and therefore focuses on the viability of sites rather than schemes. It envisages a time when all local plans and the contributions to be secured from them will have been prepared with the support of an area wide viability review and therefore scheme specific viability will not be necessary.

Eventually, it will proscribe land value for sites and, in our view, will ultimately cut off the supply of development land. At which point the pendulum will swing the other way to encourage land owners to release sites.

In the meantime (and belatedly), the latest iteration of the NPPF accepts that until all local plans are prepared in accordance with its policy, developers can still make submissions to reduce contributions where there is sufficient justification.

Which is what we do.

Planning Contributions

There are three main types of Planning Contributions in residential development:

1. Affordable Housing
2. Section 106 contributions for infrastructure to support the proposed development.
3. CIL

All contributions are a tax on development and have evolved to become an opaque tax on development land.

Opaqueness is necessary as direct land tax has failed many times in the past, but all politicians know there is a “pot-of-gold” somewhere in the system. The current convoluted and complex combination of Section 106 and CIL regimes is their best effort to find and secure it.

But be sure that this is not a tax on development or developers. It is a tax on land. And it is now clear that the objective is to capture 80% of the uplift in land value resulting from the grant of planning consent. 80%.

Intali Viability Work

We have been involved with development viability ever since it emerged in the depths of the Credit-Crunch.

Our service has developed to reflect the ever-changing policy environment and we have been responsible for unlocking hundreds of developments that may not have been deliverable without our assistance.

Under NPPF 2018, any viability assessment requires establishing a Benchmark Land Value (BLV). Essentially this is the existing use value plus “a bit”. The NPPF calls it “land-owner premium” which is:

“the amount over existing use value that goes to the land owner, and which provides a reasonable incentive for the owner of the land to bring his site forward for development.”

We think “a bit” covers it.

The BLV is the yardstick for viability. Once BLV is established, a residual development appraisal is completed and the residual value is compared to the BLV. If it is higher, the scheme is viable and, if not, the scheme is not viable.

Our work for developers focuses on:

1. Acquisition advice – What is the likely BLV of the site to be purchased. “Over-paying” for a site is NOT a justification to reduce planning contributions. Get the BLV right at the outset.
2. Assessing the viability of a proposed scheme – before planning is submitted. This is where we can have most impact on helping scheme delivery. Can the proposed scheme meet policy required contributions? If not, can they be reduced?
3. Financial Viability Assessment (FVA) – where there is a viability issue, this is the research, appraisal, methodology and reporting to the LPA to make the viability case.

The current environment is not developer friendly. Any viability submission is viewed as theft by most local authorities and, if the planning case is weak, viability will not help endear a scheme to the planners and especially the planning committee.

So, a viability argument must be used only after careful consideration of all the issues to ensure it is not counter-productive to the main objective of securing a planning permission.

And finally, to be clear, we have never taken on viability work unless we consider there is a genuine viability issue.