Viability and decision taking
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How should viability be assessed in decision-taking?
Decision-taking on individual applications does not normally require consideration of viability. However, where the deliverability of the development may be compromised by the scale of planning obligations and other costs, a viability assessment may be necessary. This should be informed by the particular circumstances of the site and proposed development in question. Assessing the viability of a particular site requires more detailed analysis than at plan level.
A site is viable if the value generated by its development exceeds the costs of developing it and also provides sufficient incentive for the land to come forward and the development to be undertaken.
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How should changes in values be treated in decision-taking?
Viability assessment in decision-taking should be based on current costs and values. Planning applications should be considered in today’s circumstances.
However, where a scheme requires phased delivery over the medium and longer term, changes in the value of development and changes in costs of delivery may be considered. Forecasts, based on relevant market data, should be agreed between the applicant and local planning authority wherever possible.
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How should different development types be treated in decision-taking?
The viability of individual development types, both commercial and residential, should be considered. Relevant factors will vary from one land use type to another.
For residential schemes, viability will vary with housing type. For example, in respect of developments of multiple units held in single ownership as private rented sector housing intended for long term rental, viability considerations in decision-taking should take account of the economics of such schemes, which will differ from build for sale. This may require a different approach to planning obligations or an adjustment of policy requirements.
Similarly, in respect of those wanting to build their own homes, any viability assessment should take account of average plot values and build costs for such development. The build route proposed (eg whether it is contractor-led or a DIY project) and any non-development costs related to the project such as project management and professional fees should be considered.
For older people’s housing, the scheme format and projected sales rates may be a factor in assessing viability.
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How should viability be considered for brownfield sites in decision-taking?
The National Planning Policy Framework sets out a core planning principle that in decision-taking local planning authorities should encourage the effective use of land by re-using land that has been previously developed (brownfield land), provided that it is not of high environmental value.
Local planning authorities should seek to work with interested parties to promote the redevelopment of brownfield sites, for example Local Enterprise Partnerships.
To incentivise the bringing back into use of brownfield sites, local planning authorities should:
- look at the different funding mechanisms available to them to cover potential costs of bringing such sites back into use
- take a flexible approach in seeking levels of planning obligations and other contributions to ensure that the combined total impact does not make a site unviable.
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How should the viability of planning obligations be considered in decision-taking?
In making decisions, the local planning authority will need to understand the impact of planning obligations on the proposal. Where an applicant is able to demonstrate to the satisfaction of the local planning authority that the planning obligation would cause the development to be unviable, the local planning authority should be flexible in seeking planning obligations.
This is particularly relevant for affordable housing contributions which are often the largest single item sought on housing developments. These contributions should not be sought without regard to individual scheme viability. The financial viability of the individual scheme should be carefully considered in line with the principles in this guidance.
Assessing viability should lead to an understanding of the scale of planning obligations which are appropriate. However, the National Planning Policy Framework is clear that where safeguards are necessary to make a particular development acceptable in planning terms, and these safeguards cannot be secured, planning permission should not be granted for unacceptable development.
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Gross Development Value
On an individual development, detailed assessment of Gross Development Value is required. On housing schemes, this will comprise the assessment of the total sales and/or capitalised rental income from the development. Grant and other external sources of funding should be considered. On retail and commercial development, assessment of value in line with industry practice will be necessary.
Wherever possible, specific evidence from comparable developments should be used after adjustment to take into account types of land use, form of property, scale, location, rents and yields. For housing, historic information about delivery rates can be informative.
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Assessment of costs should be based on robust evidence which is reflective of market conditions. All development costs should be taken into account including:
- build costs based on appropriate data, for example that of the Building Cost Information Service;
- abnormal costs, including those associated with treatment for contaminated sites or listed buildings, or historic costs associated with brownfield, phased or complex sites;
- infrastructure costs, which might include roads, sustainable drainage systems, and other green infrastructure, connection to utilities and decentralised energy and provision of social and cultural infrastructure;
- cumulative policy costs and planning obligations. The full cost of planning standards, policies and obligations will need to be taken into account, including the cost of the Community Infrastructure Levy.
- finance costs including those incurred through loans;
- professional, project management and sales and legal costs.
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Central to the consideration of viability is the assessment of land or site value. Land or site value will be an important input into the assessment. The most appropriate way to assess land or site value will vary from case to case but there are common principles which should be reflected.
In all cases, land or site value should:
- reflect policy requirements and planning obligations and, where applicable, any Community Infrastructure Levy charge;
- provide a competitive return to willing developers and land owners (including equity resulting from those wanting to build their own homes); and
- be informed by comparable, market-based evidence wherever possible. Where transacted bids are significantly above the market norm, they should not be used as part of this exercise.
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Competitive return to developers and land owners
The National Planning Policy Framework states that viability should consider “competitive returns to a willing landowner and willing developer to enable the development to be deliverable.” This return will vary significantly between projects to reflect the size and risk profile of the development and the risks to the project. A rigid approach to assumed profit levels should be avoided and comparable schemes or data sources reflected wherever possible.
A competitive return for the land owner is the price at which a reasonable land owner would be willing to sell their land for the development. The price will need to provide an incentive for the land owner to sell in comparison with the other options available. Those options may include the current use value of the land or its value for a realistic alternative use that complies with planning policy.