Development Viability and Delivering Infrastructure

1. Development Viability and Delivering Infrastructure Gilian Macinnes June 2019

2. Delivering Growth with Infrastructure(& Affordable Housing)

3. Planning for Infrastructure • What is the type and quantum of your growth? • How will you deliver your growth- with infrastructure? • Local plan policies requiring delivery? funding? • Site specific policies • Topic specific policies– e.g. transportation, digital • What are your priorities? • How will you deliver priorities? • Infrastructure Funding Statement

4. Affordable Housing and Infrastructure • The cake is only so big….

5. Economic viability of a scheme Source: ‘Financial Viability in Planning’, RICS

6. National Planning Policy Framework (NPPF 2) • ‘Plansshould set out the contributions expected from development. This should include setting out the levels and types of affordable housing provision required, along with other infrastructure (such as that needed for education, health, transport, flood and water management, green and digital infrastructure). Such policies should not undermine the deliverability of the plan.’ (para. 34) • ‘Where up-to-date policies have set out the contributions expected from development, planning applications that comply with them should be assumed to be viable. It is up to the applicant to demonstrate whether particular circumstances justify the need for a viability assessment at the application stage. The weight to be given to a viability assessment is a matter for the decision maker, having regard to all the circumstances in the case, including whether the plan and the viability evidence underpinning it is up to date, and any change in site circumstances since the plan was brought into force. All viability assessments, including any undertaken at the plan-making stage, should reflect the recommended approach in national planning guidance, including standardised inputs, and should be made publicly available.’(para.57)

7. What is Viability ?– NPPF/PPG 2019 • Viability assessment is a process of assessing whether a site is financially viable, by looking at whether the value generated by a development is more than the cost of developing it. This includes looking at the key elements of gross development value, costs, land value, landowner premium, and developer return. • Paragraph: 010 Reference ID: 10-010-20180724

8. Returns & Risk v Maximum Benefit in the Public Interest • In plan making and decision making viability helps to strike a balance between the aspirations of developers and landowners, in terms of returns against risk, and the aims of the planning system to secure maximum benefits in the public interest through the granting of planning permission. • Paragraph: 010 Reference ID: 10-010-20180724

9. What planning viability is not: • Site value/market value –based on price paid transactions that do not deliver the planning policies and do meet the policy costs • Market value – transactions – what the fool is prepared to pay

10. NPPF 2019 & PPG 2019viability • Creates an approach : • Proportionate, • Simple, • transparent & • publicly available

11. The Residual Valuation based approach Step 1: Gross Development Value (The combined value of the complete development) LESS Cost of creating the asset, including a profit margin (Construction + fees + finance charges + Developer’s Profit, CIL, s106, CfSH etc.)  = RESIDUAL VALUE Step 2: Residual Value v Existing Use Value Note: Identify the plus + EUV or Current Use Value (CUV) (make sure it is for the lawful use) or Alternative Use Value (AUV) Plus + = Threshold or benchmark land value. BLV> EUV = viable

12. Viability – Plan making • When?- site selection, creation of policy (and developing CIL) • Engagement and collaboration with site owners/ promoters/ developers • Understand infrastructure requirements and costings • Iterative process • SHLAA /SHELAA- Are the sites viable ?– Is there enough of a premium? - Have the promoters taken into account all costs including infrastructure, abnormal costs & full compliance with existing/proposed policy ? • Whole plan viability – typology based, sampling & strategic site assessment • CIL/s 106 viability • Standardised methodology

13. Viability for Plan making • Based on typologies • Important that the typologies at plan making represent those likely to come forward at planning applications stage • Important that infrastructure costs are inputs into the viability assessment to calculate benchmark land value

14. Gross Development Value All income from a Scheme CIL, S106 Aff Housing, enviro, design, etc Construction Site Remediation Abnormals Etc. Profit Developers Builders Fees Design Engineer Sales Etc. Land Existing / Alternative Land Value + uplift

15. PPG - Standard Method- Standard Income -3 elements • Market Housing • Affordable Housing • Other Uses

16. PPG – Standard Method-Standard Costs-7 headings + 1 extra build costs abnormal costs site-specific infrastructure costs cost of all relevant policy requirements including contributions towards affordable housing and infrastructure, Community Infrastructure Levy charges, and any other relevant policies or standards finance fees contingency + developer’s return

17. Developer return (Profit) • Plan making PPG – Profit - 15-20% • Alternative figures- require evidence – scale & risk profile • Site specific – assess -scale & risk profile • “Potential risk is accounted for in the assumed return for developers at the plan making stage. It is the role of developers, not plan makers or decision makers, to mitigate these risks…” Paragraph: 018 Reference ID: 10-018-20180724

18. Existing Use Value ... EUV is the value of the land in its existing use. Existing use value is not the price paid and should disregard hope value. Existing use values will vary depending on the type of site and development types. EUV can be established in collaboration between plan makers, developers and landowners by assessing the value of the specific site or type of site using published sources of information such as agricultural or industrial land values, or if appropriate capitalised rental levels at an appropriate yield (excluding any hope value for development). Paragraph: 015 Reference ID: 10-015-20190509

19. Land Value - Benchmark Land Value • Benchmark Land Value – EUV + - Existing Use Value plus a premium • The premium – minimum return at which a reasonable land owner would sell. • The Premium – is the incentive in comparison with other options available ( e.g. …?) • Iterative processive – collaboration • Any data used should reasonably identify any adjustments necessary to reflect the cost of policy compliance (including for affordable housing), or differences in the quality of land, site scale, market performance of different building use types and reasonable expectations of local landowners.

20. Benchmark Land value-EUV+ - collaborative process …In order to establish benchmark land value, plan makers, landowners, developers, infrastructure and affordable housing providers should engage and provide evidence to inform this iterative and collaborative process. Paragraph: 013 Reference ID: 10-013-20180724 • Collaborate process needs to be based on standardised methodology – comparable physical and policy compliant sites (not price paid)

21. Benchmark land value should: • be based upon existing use value. • allow for a premium to landowners- – minimum return at which a reasonable land owner would sell. • reflect the implications of abnormal costs; site-specific infrastructure costs planning policy costs (s106/CIL); and professional site fees. • Existing use value should be informed by market evidence of current uses, costs and values. • Market evidence can also be used as a cross-check of benchmark land value but should not be used in place of benchmark land value. • In plan making, the landowner premium should be tested and balanced against emerging policies. In decision making, the cost implications of all relevant policy requirements, …should be taken into account. • Excerpts from: Paragraph: 014 Reference ID: 10-014-20190509

22. Viability assessment- in decision making? Where a viability assessment is submitted to accompany a planning application this should be based upon and refer back to the viability assessment that informed the plan; and the applicant should provide evidence of what has changed since then. The weight to be given to a viability assessment is a matter for the decision maker, having regard to all the circumstances in the case.. Paragraph: 008 Reference ID: 10-008-20190509

23. Viability assessment-decision making? • 3 Rules • Refer back to plan-wide viability assessment. • LPA to determine weight. • If the LPA accept a Viability assessment it must be based on recommended approach (PPG). • Standardised inputs - Compare and Contrast: • Plan-wide viability assessment • Developer’s appraisal • Now – up to date data

24. Paying the right price? • In buying the site (or agreeing an option) – the ‘developer’ should have taken into account all the policy costs (s106 etc) and other material considerations in what they paid. • The price should be the minimum return for the reasonable landowner taking into account the policy context

25. Mapping Growth • How do you create a great place? • What does this mean for your authorities infrastructure? • Transportation • Highways • Education • Social and community facililties • Sports facilities etcetc

26. Funding Infrastructure • Includes: • District • Community facilities • Sports & recreational facilities • County Council • 70-80% of Infrastructure to support growth • Highways and transportation • Education – nursery, primary, secondary, special needs • YC Hertfordshire – youth work • Libraries • Waste management • Adult social care • Flood, fire etcetc • Health

27. How do you fund infrastructure ? • S106 – limitations – payment – or in kind • Community Infrastructure Levy • S278 – highways • Education – Basic needs – Education Skills and Funding Agency • Health – Government funding • Capital budgets • Local Enterprise Partnership (LEP) • Central Government funding pots received on 25 March 2019 • Access to match funding? • Access to Government funding

28. It is all about delivery • What is the best approach to delivering infrastructure to deliver development – s106 – CIL – s278 – a combination? Knights Park – houses, school, shops, transport -Dandara Homes

29. So what is the best way to deliver? • That depends on your circumstances… • Your growth • Your infrastructure • What is strategic and what is not • Berkeley Homes -

30. S106 for Infrastructure - benefits • Understood by everyone • Direct mitigation – addresses the site issues e.g. flooding, provision of a primary school • More directly related to the value of the site • On-site delivery – in kind • Developer as the delivery agent PROS

31. Benefits of s106 - continued • Developers know where their money is being spent/contribution is going • Placemaking value • - Berkeley Homes PROS

32. Disadvantages of S106 • Cannot be sought for 10 units or less or 1000 SqM ( or 5 units or less in rural area) • Negotiated • Not known by the developer upfront • time consuming & skills required • are you able to achieve/maximise on all sites? (less with new NPPF/PPG?) • Lacking transparency ( But Infrastructure Funding Statement will improve this) CONS

33. Disadvantages of s106 • Need to pay back after – X Years ( usually 5) if not spent • Needs to be specified in the obligation– and paid back if it is not used for that purpose e.g. Health CONS

34. Disadvantages of s106 • The need to meet the legal tests can be a significant limitation • If the development is capable of being charged CIL, the S106 obligation must meet these legal tests: • NECESSARYto make the development acceptable in planning terms • DIRECTLY RELATEDto the development • FAIRLY AND REASONABLYrelated in kind and scale to the development CONS

35. A Limitation- The Legal Tests & the Supreme Court Case • Aberdeen City and Shire Strategic Development Planning Authority v Elsick Development Company Limited: • “..a planning obligation, which is to contribute funding, to be a material consideration in the decision to grant planning permission, there must be more than a trivial connection between the development and the intervention or interventions which the proposed contribution will fund. The planning obligation which Elsick entered into could not be a relevant consideration in the grant of the planning permission. In my view, it was not within the power of the planning authority to require a developer to enter into such an obligation which would be irrelevant to its application for permission as a precondition of the grant of that permission. “

36. Benefits of CIL • The infrastructure project you spend it on can be strategic – it can have a ’trivial’ relationship with the development • No payback period – you can save it up for as long as necessary ( no getting caught out!) • Not project or type of infrastructure specific • You can spend it where you want (as long as it supports the delivery of your growth) • The use of CIL is very flexible PROS

37. Benefits of CIL • You can collect it from all scales of development – less than 11 units- a little from all small development does add up • No negotiation required – its fixed – it’s a tax • No need to draft s106 agreements – so no hold up on decision making PROS

38. Benefits of CIL • The amount to be paid is fairly clear and transparent to the applicant prior to application • CIL cannot be appealed on grounds of viability • CIL was made for sharing • Its clear you can give it to another body to spend and it can be spent outside the administrative area of the LPA • It addresses cross boundary growth delivery • It can aid delivery of cross boundary infrastructure PROS

39. Benefits of CIL – Land - ‘Payment in Kind’ • 73.— (1) A charging authority may accept one or more land payments in satisfaction of the whole or part of the CIL due in respect of a chargeable development PROS

40. Disadvantages of CIL • Delivery Agent = Local Planning Authority • Do you have the skills? • (Or do you know someone who does?) • Is this the most efficient and cost effective method of delivery? CONS

41. Disadvantages of CIL • Delivery Agent = Local Planning Authority • CIL Infrastructure ‘in Kind’- doesn’t work for most • 73A… (7) A charging authority may not accept an infrastructure payment unless— • (a) it is satisfied that P— • (i) has, or is likely to have, sufficient control over the land on which the infrastructure is to be constructed to enable P to provide the infrastructure, and • (ii) has provided the charging authority with evidence that P has obtained, or will be likely to be able to obtain, any relevant statutory authorisations that are necessary to enable the infrastructure to be constructed; • (b) it is satisfied that the infrastructure to be provided— • (i) is relevant infrastructure, and • (ii) is not necessary to make the development granted permission by the relevant permission acceptable in planning terms;... CONS

42. Disadvantages of CIL • Less transparent for Developers (although Infrastructure Funding Statement will improve this) • Netting off of “in – use” floorspace to reduce payment CONS

43. CIL Factors • Exemptions – e.g. self build • Neighbourhood proportion

44. What is your growth profile going to be? • All small scale – lots of sites less than 11 units • Large strategic sites – Garden communities • Large greenfield sites • Edge of settlement growth • Brownfield land - Small • Brownfield land- medium • A mixture of site types? • What are your main typologies? • What does this mean for your approach to developer contributions?

45. Your growth - 2 • Is your growth focused on individual settlement? • Is that a large addition to the settlement – how will you make the place? • Is it a small amount of incremental growth • What is the geographic spread of your growth? • Is your growth close to your boundaries? • Where will the impact of that growth be?

46. Is your growth a mixture of typologies? • Will your viability affect your developer contributions choices?

47. What infrastructure does your growth require? • What is the infrastructure impact of your growth? • What you require may/will determine your contributions strategy • Does your growth require large strategic infrastructure? • Is your infrastructure requirements improving and extending existing facilities? • Is the infrastructure in your administrative area? • Is the infrastructure closely related to the development site?

48. Use both CIL and s106?

49. How much infrastructure will developer contributions fund?

50. Other funding? Community Housing Fund The Community Housing Fund aims to support an increase in housing supply in England by increasing the number of additional homes delivered by the community-led housing sector.