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.
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.
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.
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.