Planning Viability

The much-awaited GLA’s Guidance (Consultation Draft) on affordable housing and viability was recently released and is open for consultation until the 24th July. Although much is familiar in the documents there are several new or reinforced points, which landowners, developers, RP’s would be advised to pay careful attention to. 

Foundational Principles

• Where relevant policies in the local Development Plan documents are up to date, it is expected that applications will comply with Development Plan Policies and guidance, and that site-specific viability assessments may not be required unless there are specific reasons for doing so i.e. exceptionally high development costs or where the value generated by a development would be exceptionally low.

• There appears to be suggestion that site specific assessments or even individual inputs could be weighted accordingly by the LPA if not fully justified and as before the evidential burden firmly lies with the applicant.

• If a site is unable to meet the threshold level of affordable housing, this should be evidenced at an early stage as part of the pre-app where possible and again fully justified – Importance of upfront viability advice!!

Room for Manoeuvre 

• More nuance allowed depending on delivery route - A range of inputs considered acceptable such as developer return and finance cost depending on entity involved i.e. RPs, owner-investors, those undertaking JVs with RPs and public sector organisations, as opposed to traditional developers. This point in particularly opens the door to a more varied approach to Estate Renewal projects and BTR led projects.

Optimisation

• The are several points which attempt to close the door on viability workarounds. The guidance is clear that a landowner / developer should adopt an approach to optimise affordable housing and the viability of development. This means that where elements of a scheme do not contribute positively towards viability and increasing affordable housing levels, they are excluded or alternative approach explored. An example would be the inclusion of basement parking where this is not a policy requirement. 
• In terms of mixed-use schemes - If flexibility is being sought through the permission (Class E) then the viability assessment should reflect the highest possible commercial value. 
• Greater emphasis on sensitivity and growth modelling. In addition to the more typical value and build costs s analysis profit should also form part of the modelling. The modelling should place a stronger focus on sensitivity and growth analysis. In addition to the conventional sensitivity analysis of value and construction costs profit levels should also be considered.
• The guidance moves towards a more limited application of a "premium" to EUV (Existing Use Value). Reinforces the suggestion that if a scheme does not reflect policy requirements a premium may not be appropriate. No premium for AUVs reinforced, which mirrors the previous guidance.
  
  
  

Protection

• The guidance promotes the greater use of mid-stage reviews advocated for larger schemes that are not part of the Fast Track Route - 500 unit plus schemes.

• If a viability deficit is reflected in a Review, the Guidance indicates that there should be a downward adjustment to build costs before the identification of the Breakeven GDV.  No mention of the downward adjustment to build costs in the previous version.

• The guidance introduces a new Fast Track route specifically designed for co-living developments.

Sense Check 

• In addition to transparency the guidance reinforces the step back and consider approach. Specifically, it recommends the cross check of the viability outputs with adjusted transactional evidence. There is often a miss match between price paid per private unit and the land value being presented in FVA assessments and this continues to be an area of mistrust. 

Many of the points indicated above have been used in negotiations in the recent past but this new Guidance aims to establish a formal framework for their use. While it provides specific instructions, it also introduces the possibility of more ambiguous situations, particularly regarding the discretion of the LPA or the GLA to assign less importance to a site-specific viability assessment or specific inputs if they deem the results to be implausible or unsupported.
 
A developer / investor should be fully aware of local policy expectations and understand the strength of any mitigation strategy from the outset – the starting point is always what is the site’s Existing Use Value? Or how would an LPA view the site’s Benchmark Land Value?

Why Us

We appreciate that planning viability can be construed as a “grey area” where development intersects with planning and the private sector converges with the public sector. It is inevitable that starting points will differ, and the journey towards consensus will continue to present challenges. 

The Carter Jonas London Development Team provides strategic development advice including undertaking feasibility studies and financial planning viability advice.  In respect of planning viability, we have been involved in over 50 planning viability projects in the past two years including advising on some of the largest proposals in London.  

If you need our assistance, then please do get in touch.