Shropshire Council's Viability and Development Economics

1. PAS viability and development economics:Shropshire Council’s experienceHelen HowiePrincipal Policy Officerhelen.howie@shropshire.gov.uk01743 252676

2. A range of viability experience: Shrewsbury Growth Point Northern market towns (Oswestry, Whitchurch, Market Drayton) Green Belt Commuter towns (Bridgnorth, Shifnal) Retirement towns (Church Stretton, Albrighton) Villages (500+) of different sizes & degrees of rurality Shropshire is where…?

3. 2010 Core Strategy ‘dynamic viability’ approach to affordable hsg • CIL Charging Schedule • 2012 Infrastructure costs (s106) additional to CIL • 2013 Revised affordable housing viability study (in-house) • 2014+ Proving site allocations are viable and deliverable • Drawing on all the above, let me talk you through how we did it in Shropshire…. Viability experience

4. 2010 viability study recommended 20% affordable housing, rising to 25% 2011 Dynamic viability approach reduced affordable housing rate to 13% (= £11,700 for a 100sqm dwelling) 2012 CIL added £40/sqm in urban areas, plus £80/sqm in rural areas (= £4,000 / £8,000 for a 100sqm dwelling) 2012 Dynamic viability would reduce affordable housing rate to 3% TOO LOW FOR MEMBERS TO ACCEPT 2013 Revised affordable housing study ‘solved problem’ by creating 3 geographical areas with 3 new rates, of 10%, 15%, 20% 2014 On-going issue of demonstrating that development is deliverable Dynamic viability

5. What we found easy to do • Market strength • Costs • Moderate effort (but highly worthwhile) • Developer panel • Differences between sites • HCA Area-wide viability model • Difficult to crack • Land values • “Reasonable return” assumptions • Infrastructure costs • Bringing different areas of expertise together Overview of session

6. (Free) Land Registry data

7. Which ‘average’ to use?

8. Different market strengthsRevised affordable housing rates:A 20%B 15%C 10%

9. Which figures do you use? BCIS subscription-only service BIS index (free but not as detailed) Build & On-Costs Source: BIS quarterly-construction-price-and-cost-indices by quarter

10. Moderate effort • (but highly worthwhile) • Developer panel • Differences between sites • HCA Area-wide viability model

11. Meets 3 times a year & comprises: • Local developers (5-30 homes) • Land agents specialising in small developers (1-2 homes) • Nationals (Taylor Wimpey, Persimmon Homes, Gallaghers) • Registered Providers (so that the private sector can’t pull wool over our eyes) • Key local landowners (eg. Oswestry urban extension) • ? Planning agents representing various clients (who pays?) • ? Local authority property services rep • ? Split up resi from other types of development? Shropshire Developer Panel

12. Small sites c.60% of new dwellings in Shropshire are on sites <5 dwellings Government intends to exempt ‘self build’ from ah & CIL To what degree are small units treated differently? Differences between sites Redevelopment sites Are greenfield sites really more expensive?

13. How do you deal with house price ‘cliffs’? Rural markets have extremes – very low values co-existing with very high values. Boundaries drawn pragmatically across fields rather than through villages. Rural vs Urban

14. Table 6.4. Construction costs (per square metre) Different costs

15. Testing different mixes

16. Different mixes vary greatly in their viabilityso you need to think this through at the start

17. A FREE and very powerful tool; works out the cash-flow aspects Results can be either a) Specify % affordable housing and it calculates RLV or b) Specify threshold LV and it calculates max % affordable housing Offers plenty of options (mixes, variable types of site, etc) But understand its limitations GIGO (Garbage In, Garbage Out) HCA Area-Wide viability model

18. Difficult to crack • Land values • “Reasonable return” assumptions • Infrastructure costs Difficult to crack

19. We used: • our viability consultants’ previous reports • VOA reports (alas no longer produced) • Survey of our Developer Panel Land values

20. Survey of local developers

21. Landowner expectations What is a “competitive return” sufficient to induce them to sell? • Developer panel suggested uplift of £150,000/acre (£370,000/ha) on farmland • Industry norm of 20%-30% EUV on brownfield sites • More on premium greenfield sites • We assumped landowners’ expectations were linked to expected GDV (landowner wants his share of the cake) – so are more in higher value areas

23. Revised dynamic viability Index for Area B Initial rate set by model’s results Will annually review the rate in area B, linked to house prices & costs Future rates for areas A & C set in proportion to rate in area B

24. CIL examination: 2 Statements of Common Ground required: • Highways Agency & developers (Shrewsbury South Urban Extension) • Shropshire Council & other landowners (Shrewsbury West SUE) • Shows the limitations of an area-wide CIL • S106 infrastructure & Site Allocations deliverability: • Local road improvement costs • Trunk road costs • Sustainable transport measures • Educational costs • Split proportionately between developers Variability between sites: different Infrastructure Costs

25. Area-wide viability can only be broad-brush • Site specific viability is as slippery as soap • S106 and site-specific requirements still needed to tailor to unique circumstances • Political and landowner expectations are as important as the figures • You have more in-house information that you think: but you also need expert advice Conclusions – understand the limitations

26. What we found easy to do in-house • Market strength • Costs • Moderate effort– depends on staff resource • Developer panel • Differences between sites • Area-wide viability model • Obtaining build & on-costs • Difficult to crack – utilise your experts • Land values • “Competitive return” for Landowners • Infrastructure provision Using consultants

27. Viability evidence is crucial: • Technical viability study with boring costs, etc • PLUS • SHLAA Market Assessment Chapter • AMR • Infrastructure costs and arrangements for its provision • Housing Implementation Strategy Conclusions – evidencing viability

28. Summary: Viability is a thread running through all plan-making, not a one-off study. Thanks for listening. Any Questions? Helen.howie@shropshire.gov.uk 01743 252676