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HCA Area Wide Viability Model

HCA Area Wide Viability Model. PAS Viability Skills for Planners – Workshop B January 2011 Graeme Geddes – Planning Manager – Programmes Directorate. Area Wide Viability Model. What is it? What’s it for? What it does (and doesn’t do) Key concepts used Assumptions How it works.

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HCA Area Wide Viability Model

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  1. HCA Area Wide Viability Model PAS Viability Skills for Planners – Workshop B January 2011 Graeme Geddes – Planning Manager – Programmes Directorate

  2. Area Wide Viability Model • What is it? • What’s it for? • What it does (and doesn’t do) • Key concepts used • Assumptions • How it works

  3. The value capture pie Affordable Housing s106 Community Infrastructure Levy Other s106 How large each slice?

  4. What is it? • A neutral tool • An “open source” enabling resource • www.homesandcommunities.co.uk/area-wide-viability-model • No default assumptions • Strategic viability testing • User Manual • HCA Transparent Viability Assumptions

  5. Developers Require sufficient return for cost of investment and for taking on development risk Viable Developments Land owners Sufficient value to meet expectations and release land for development Planning Authorities Sufficient planning obligations to make development acceptable + CIL

  6. What it’s for • Mixed tenure residential development • Interface with planning policy • Testing • Affordable Housing Delivery • Community Infrastructure Levy • Deliverability of • SHLAA sites • HCA Local Investment Plans

  7. What it models • Deliverability of plans/policy • Community Infrastructure Levy • Design Standards • Affordable homes % (without public investment)

  8. Area wide & site specific Plan Making Development Management Local Investment Plans Individual Project Delivery Area wide viability model Site specific viability tool (EAT / 3 Dragons) Planning/ S106 negotiations/ land sale to RPs Investment Decisions Planning policy Land transactions Delivery Market Baseline Additionality

  9. The viability equation Infrastructure / Enabling £3m

  10. The viability equation £38m Construction Infrastructure / Enabling £3m

  11. The viability equation £4m Professional Fees £38m Construction Infrastructure / Enabling £3m

  12. The viability equation Sales & Marketing Costs £1m £4m Professional Fees £38m Construction Infrastructure / Enabling £3m

  13. The viability equation Finance Costs £5m Sales & Marketing Costs £1m £4m Professional Fees £38m Construction Infrastructure / Enabling £3m

  14. The viability equation £2m Contingencies & Other Costs Finance Costs £5m Sales & Marketing Costs £1m £4m Professional Fees £38m Construction Infrastructure / Enabling £3m

  15. The viability equation Developer’s Profit £11m £2m Contingencies & Other Costs Finance Costs £5m Sales & Marketing Costs £1m £4m Professional Fees £38m Construction Infrastructure / Enabling £3m

  16. The viability equation s.106 £3m Developer’s Profit £11m £2m Contingencies & Other Costs Finance Costs £5m Sales & Marketing Costs £1m £4m Professional Fees £38m Construction Infrastructure / Enabling £3m

  17. The viability equation s.106 £3m Developer’s Profit £11m £2m Contingencies & Other Costs Finance Costs £5m Costs £67m Sales & Marketing Costs £1m £4m Professional Fees £38m Construction Infrastructure / Enabling £3m

  18. The viability equation s.106 £3m Developer’s Profit £11m £2m Contingencies & Other Costs Finance Costs £5m Costs £67m Sales & Marketing Costs £1m £75m Revenues (GDV) £4m Professional Fees £38m Construction Infrastructure / Enabling £3m

  19. The viability equation Residual = land £8m Land Value s.106 £3m Developer’s Profit £11m £2m Contingencies & Other Costs Finance Costs £5m Costs £67m Sales & Marketing Costs £1m £75m Revenues (GDV) £4m Professional Fees £38m Construction Infrastructure / Enabling £3m

  20. Non-viable development Landowner requirement £12m s.106 £3m Developer’s Profit £11m £2m Contingencies & Other Costs Finance Costs £5m Costs £67m Sales & Marketing Costs £1m £75m Revenues (GDV) £4m Professional Fees £38m Construction Infrastructure / Enabling £3m

  21. Viability - a constraint on delivery & s106 capacity Partially Functioning Markets Costs of “Regulation” Pressure on viability of land supply Planning Obligations Affordable Housing Infrastructure via S106/ CIL

  22. Planning obligations - who pays?

  23. Key Concepts • Land Value Capture • Affordable housing price (without grant) • Threshold Land Value • Development Typologies

  24. Guidance on Viability?

  25. Threshold Land Value • Value at which land will come forward in market • Satisfying landowner expectations • Taking account of planning policy • But how much greater than existing / alternative use? • Lack of professional consensus & guidance • RICS practice note Financial Viability in Planning • HCA Transparent viability assumptions

  26. Area-wide viability model Works across a district Groups sites by typologies For a given set of planning policies is each typology viable or not? Evaluation of trade-offs between planning obligations

  27. The model doesn’t • Calculate Threshold Land Values • Provide advice on assumptions • Contain default assumptions • Prevent use of wrong assumptions

  28. The value capture pie Affordable Housing s106 Community Infrastructure Levy Other s106 How large each slice? Viable market baseline to which HCA funding adds value.

  29. Capacity for value capture less Total construction costs, interest, fees, etc. Completed Development Value less Developer profit equals Residual Land Value(above Threshold Value) less Threshold Land Value equals Capacity for CIL / S106 Capacity for Affordable Housing

  30. Funding gap Analysing differences between development typologies Target £000s for CIL / S106 Target % affordable housing gives Residual land value for typology where less than Assumed threshold land value difference equals Funding gap £000s to support viable residual land value

  31. Affordable homes – no grant Understanding capacity of different development typologies Target £000s for CIL / S106 Assumed threshold land value for RLV which equalsThreshold Residual land value model “goal seeks” market baseline Capacity for affordable homes as % of private for given affordable rent / intermediate split

  32. Core principle of model For a development site typology Is the residual land value (what the developer can pay for the land) sufficient for the landowner to release the site? (the threshold land value)

  33. Area Wide Viability Model • Overview of model & navigation • Concept of development typologies • Importance of assumptions • Sensitivity to changes in key assumptions • Sales value mapping

  34. Chelmsford heat map Land Registry 2009 transactions

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