Joint Councils' Viability Report 2017
Thirteen London Councils grouped together to commission an independent Viability Report which was published in January this year. The Report considers the relationship between land prices and the provision of affordable housing. It recognises that paragraph 173 of the National Planning Policy Framework (NPPF) sets out the key requirements for sustainable development to be 'economically viable'. This means that contributions placed on development should not be set at a level which becomes unattractive to development so leading to 'stalled schemes'.
In light of this context, it notes that assessment of viability has become central to housing delivery but rather than leading to an increase in the number of affordable homes, levels have in fact fallen "in both numerical and percentage terms". In exploring the reasons for this "squeeze", the research concludes that one of the major issues relates to viability testing, which being a complex process is capable of "manipulation through the use of a wide variety of input data" and in particular the assessment of "benchmark land value" . A further factor, it suggests, is that there is a power "imbalance" between planners (and Inspectors) and developers and their consultants.
Based on the findings of the study, the Report makes seven recommendations:
Recommendation 1 – Site Viability Testing should be revised
The Report raises three possible routes to reform the planning system to bring "certainty and clarity" to the viability testing process:
Option A – Introduce a Fixed Tariff
The study says that the Councils' research revealed a considerable support for introducing a fixed (single or scaled) tariff. This was based on 26 in-depth interviews with professionals who favoured a system providing certainty as to what is payable similar to the CIL system. Balanced against the benefits of greater certainty was recognition that inflexibility may be harmful to Greater London development where circumstances may widely vary from site to site. As a result it may be better to fix a low target tariff and possibly mitigate with use of review clauses.
Option B- Scale back viability testing to be the "exception rather than the rule"
Assuming that fixed tariffs would be adopted, this would mean that viability testing would only need to be applied within a limited set of circumstances e.g. those with unusually high remediation or infrastructure costs. In such proven circumstances, a reduction in obligations could be considered where an acceptable threshold land value cannot be achieved.
Option C – Abolish site level viability testing completely
For this option to work it would be necessary to have some sort of alternative fixed tariff option or for social housing to be provided entirely though the public sector. This in turn would require some sort of public tax. If this option was favoured then Recommendation 2 – 5 below would not be needed.
Recommendation 2 – Redefine Benchmark Land Value
The Report calls for more definitive guidance on how to determine benchmark values. Overall, a "EUV plus a premium" approach was favoured. A suggested definition for benchmark value was "the value below which the site will be retained in its existing use". This needs to be distinguished from actual sale price.
Recommendation 3 - Clearer Guidance on Developer's Return
A clear steer is called for in relation to what is an acceptable competitive return. The Report believes that the notion is too vague and that generally the percentage allowed for profit has been generally too high not taking into account the rewards received from other factors such as low interest rates and the protection afforded by the viability testing itself.
Recommendation 4 – Greater Disclosure
Full disclosure of viability assessments has generally been resisted due to sensitivity around client confidentiality and competitive practice. On balance the Report recommends greater disclosure to serve the public interest and a transparent planning process.
Recommendation 5 – Additional Training
Lack of funding has led to planning departments and parts of the Planning Inspectorate being under trained to deal with viability aspects in relation to initial applications and appeals. Better resources and training will provide LPAs and the Planning Inspectorate with the necessary core competence.
Recommendation 6 – Greater Public/Social Provision
Greater diversity is needed as to the delivery of affordable housing whether though public, social or private sector providers, or a mix. Many private developers need assistance to understand local needs and how to engage in long term engagement with local communities which local authorities should be encouraged to support. The Report also calls for more delivery agencies and for limits on local authority borrowing and grant to be re-evaluated.
Recommendation 7 – Better Ways to Bring Forward Land
The Report recommends more consideration be given to incentives and compulsion in relation to land being brought forward for development e.g. a local land value tax or compulsory sales orders.
The findings clearly conclude that the current viability testing system favours developers and is in fact "broken". It is not yet known how the relevant Boroughs will take forward these conclusions, or whether they have been submitted in response to the Mayor's Housing and Viability SPG consultation process due to expire later this month. What might be surprising to the Councils who commissioned the Report is that developers do not universally embrace the uncertainty provided by the viability system either and would also welcome greater clarity from the outset to avoid costly delays and wrangles at appeal.