The viability of a development scheme has been given greater emphasis in recent years due to an uncertain housing market and the withdrawal of grant funding for affordable housing.
The now repealed planning obligation Circular (May 2005) acknowledged that it 'may not be feasible for the proposed development to meet all the requirements set out in local regional and national planning policies and still be economically viable'.
Local Planning Authorities are required to have regard to development viability as part of an emerging Local Plan and Community Infrastructure Levy charging schedule.
RICS have published a ‘Financial viability in planning’ guide (August 2012) to provide a framework for developers and local planning authorities. Financial viability for planning purposes is defined by this guidance as follows:
- “An objective financial viability test of the ability of a development project to meet its costs including the cost of planning obligations, while ensuring an appropriate Site Value for the landowner and a market risk adjusted return to the developer in delivering that project”.
Site Value, either as an input into a scheme specific appraisal or as a benchmark, is designed in the guidance notes:
- “Site Value should equate to the market value subject to the following assumption: that the value has regard to development plan policies and all other material planning considerations and disregards that which is contrary to the development plan”.
Applicants are advised to raise the issue of unviability at the earliest possible stage in the planning process to enable us to undertake a financial appraisal of the scheme and where appropriate, consider positive changes to the scheme such that the site may come forward for development.
In accordance with Paragraph 5.8 of the Affordable Housing SPD (March 2010):
“Where the Council needs independent advice to validate a viability appraisal submitted by an applicant that seeks to justify a variation on the 40% or more target include in Policy HG/3, reasonable costs will be met by the developer/applicant”.
We have appointed the Cambridge office of Carter Jonas LLP on a retained contract to act as an independent consultant providing advice to both us and the applicant. Their role is to assess and provide a view on the information submitted therefore applicants will be required to provide their view on (a) estimated sales values, (b) existing or alternative use value and (c) build costs and providing, where relevant, sufficient information to substantiate these figures.
Viability appraisals is an iterative process and in such cases it is for the local planning authority to decide which planning aspirations are more essential, given local pressures and priorities, and determine the application based on these considerations.
In some cases the planning authority will be unable to support a scheme, despite having undertaken a robust viability appraisal, due to the proposal failing to create a sustainable mixed and balanced community.