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Viability Testing of CIL and Local Plans Effective Practice

This article discusses the importance of viability testing in the context of Community Infrastructure Levy (CIL) and local plans. It covers topics such as aligning objectives, balancing risk, achieving consistency, and the role of CIL in viability testing. The article also highlights the wide variation in emerging rates of CIL and explores the synergy of objectives between local authorities, landowners, and developers. It concludes by emphasizing the need to consider the delivery context and the impact of land value benchmarks in viability assessments.

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Viability Testing of CIL and Local Plans Effective Practice

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  1. Viability Testing of CIL and Local PlansEffective Practice Melys Pritchett Associate Director, Development Research & Consultancy 10th July 2013

  2. Contents The emerging picture Aligning objectives Balancing risk Achieving consistency

  3. CIL is leading the way with regard to viability testing Source: Savills, 8 July 2013

  4. Wide variation in the emerging rates of CIL Source: Savills

  5. Synergy of objectives Local authority Land to come forward for development to meet Local Plan objectives including housing targets Developer Land to come forward for development to deliver the return on capital expected by corporate investors

  6. The third dimension Local authority Land to come forward for development to meet Local Plan objectives including housing targets Developer Land to come forward for development to deliver the return on capital expected by corporate investors Landowner Return to landowner for it to be released for development

  7. What is a competitive developer return? House builder objectives have shifted from volume to margin, to meet market expectations Competitive return across the cycle = 20%+ margin on revenue across the market cycle

  8. Does CIL come out of land value? Residual land value that can be created YES Return to the landowner NOT IF the return is less than threshold land value

  9. Balancing risk Historic delivery Historic Section106 achievement Local Plan policy costs Benchmark land value Land supply characteristics and profile Viability buffer

  10. What is the delivery context? Is delivery meeting housing targets? Evidence of historic Section 106 payments is relevant if: the site has been delivering recently the context in which delivery was viable is properly understood overall delivery is meeting housing targets

  11. Section 106 and CIL Explicit policy on the balance between Section 106 and CIL • Draft regulation 123 list – what will be excluded from Section 106 funding? • Proposed changes to the Regulations – what will be excluded from Section 278 funding? • The proposed changes to the regulations will tighten the restriction on pooling of Section 106 Must be allowed for within the viability appraisals

  12. Affordable housing and CIL compete for the same pot Local Plan Viability Affordable housing Other Section 106 Standards CIL

  13. The impact of the land value benchmark Market land value benchmark Lower threat to delivery Higher threat to delivery EUV+ land value benchmark

  14. What is the land supply? What land underpins the Local Plan? Is there a 5 year land supply identified? What types of site make up most of the Local Plan land supply? • What types of site? • In which local sub-markets? The viability conclusions should relate back to these answers

  15. Applying the viability buffer v v ‘Generosity’ on all assumptions including contingency Apply a % reduction to a theoretical maximum CIL rate Set land value to include a viability cushion

  16. We are not yet seeing a common approach that reflects national policy consistently Source: Savills

  17. Visit www.savills.co.uk/cil

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