Viability Assessment and Housing Delivery
Stuart Andrews, Partner
Head of Planning
Eversheds LLP
September 2013
Viability Assessment and Housing Delivery
 The intention of this paper:
Part 1.
 to focus on the requirements for viability review
mechanisms in s106 Agreements.
 to review current Government policy.
 to look at relevant case law.
 to establish some ground rules for viability review.
Part 2.
 to look at viability inputs by reference to a case study.
 to identify some potential ground rules for viability
assessment.
The NPPF
‘To ensure viability, the costs of any
requirement likely to be applied to
development, …should, when taking into
account the normal cost of development and
mitigation, provide competitive returns to a
willing land owner and willing developer to
enable the development to be deliverable.’
(paragraph 173).
The NPPF
‘Where obligations are being sought or
revised, local planning authorities should
take account of changes in market
conditions over time and, wherever
appropriate, be sufficiently flexible to
prevent planned development being
stalled’. (para.205)
RICS: Financial Viability in Planning (August 2012)
‘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’.
RICS: Financial Viability in Planning (August 2012)
‘…re-appraisal mechanisms should only be
considered in exceptional cases. These appraisals
would usually be undertaken during the reserved
matters application stage. Careful consideration
would need to be given as to how this is set out
in a section 106 agreement, although it will be
important to the LPA and applicant to express a
range for the assessment, i.e. for the applicant to
state the level of obligation above which they
would not be expected to exceed and for the LPA
to state the level of obligation below which the
development will be unacceptable, regardless of
the benefits that arise from it.’
Section 106 affordable housing requirements:
Review and appeal (April 2013)
Unrealistic Section 106 agreements negotiated in
differing economic conditions can be an obstacle to
house building.
Stalled schemes due to economically unviable
affordable housing requirements result in no
development, no regeneration and no community
benefit. Reviewing such agreements will result in
more housing and more affordable housing than
would otherwise be the case.
Section 106 affordable housing requirements:
Review and appeal (April 2013)
The Growth and Infrastructure Act inserts a new Section
106BA, BB and BC into the 1990 Town and Country
Planning Act. These sections introduce a new application
and appeal procedure for the review of planning
obligations on planning permissions which relate to the
provision of affordable housing.
Section 106 affordable housing requirements:
Review and appeal (April 2013)
The test for viability is that the evidence indicates that
the current cost of building out the entire site (at today’s
prices) is at a level that would enable the developer to
sell all the market units on the site (in today’s market) at
a rate of build out evidenced by the developer, and make
a competitive return to a willing developer and a willing
landowner.
Section 106 affordable housing requirements:
Review and appeal (April 2013)
A viable affordable housing provision should be
proposed. This should deliver the maximum level of
affordable housing consistent with viability and the
optimum mix of provision. The proposal may
consider whether adjustments should be made to
the affordable housing tenure and mix and, where
relevant, phasing may also be considered.
Section 106 affordable housing requirements:
Review and appeal (April 2013)
 A revised appraisal should:




be prepared in the same form to that for the application.
be based on current market conditions.
make the same policy assumptions .
assume that the obligations remain as for the permitted
scheme.
 identify variables where there is new evidence and that
impacts on viability.
 be clear where evidence has been revisited for the revised
appraisal.
Section 106 affordable housing requirements:
Review and appeal (April 2013)
 Section 106BC ensures that if an Inspector modifies
an affordable housing obligation on appeal, that
modification is valid for 3 years. If the development is
not completed in that time, the original affordable
housing obligation will apply
The approach of the Inspectorate and the SoS
 SoS decision relating to development of some 2,300
residential units on land at Long Lane and Shelford Road
(Clay Farm), Cambridge:
“Turning to the deliverability of the development, the Secretary of
State agrees with the Inspector that the current economic conditions
may result in the site being left undeveloped for some time and he
agrees that this is not a sufficient reason in itself to justify a grant of
planning permission for this scheme in the form proposed. Whilst the
Secretary of State considers the timing and extent of the recovery in
the housing market remains uncertain… He also agrees that there may
be scope for exploring options to induce commencement on sites whilst
providing mechanisms to achieve an overall total of 40% affordable
housing to be spread across the development as a whole.”
The approach of the Inspectorate and the SoS
 Note, however, the PINS decision in the Forest Of Dean District
Council case relating to Land at the Lydney Bypass, Lydney.
 The Inspector concluded that the site ceases to:
“The evidence is that the appeal site can be developed only by
forfeiting a significant proportion of the affordable housing which
has been justified in effect at all levels of policy and via a recent
SHMA, leaving the overall need defined to a large extent
unsatisfied, and with no opportunity to recoup affordable housing
from another allocated site. I consider that if developed according
to the current proposal the site would not contribute adequately to
the creation of sustainable, inclusive mixed communities in the
terms of PPS3; would not be suitable in those terms; and in those
circumstances would not comply with the development plan, or
with PPS3.”
The approach of the Court

Robert Hitchins Ltd − v − Secretary Of State For Communities And Local
Government (ex p. Forest Of Dean District Council) CO/13646/2009
“…in my judgment the Inspector was saying that the current economic
conditions carried little weight in view of the lengthy timescale over which the
…project was planned and the reasonable expectation was that current
economic conditions were likely to be temporary.
She acknowledged that the figures prepared by the Claimant had been based
on current known costs and market conditions prevailing at the present time
and that the Council's efforts to use forward projections was wrong in principle.
… she distinguished the facts of that case because the scale of the Godalming
project was much smaller and it was not realistic then to wait for a change in
market conditions.
The Inspector did not, on a fair reading of her report as a whole, fall into the
error which the Claimant attributes to her.”
Viability Assessment and Housing Delivery
 The basic ground rules for viability review:
 it is about assessing the economics of future
development.
 it is(n’t) about assessing past performance.
 it should follow the same format as the
application.
 it is based on current market conditions.
 the best evidence will be from the scheme itself.
 try to apply the same policy assumptions and
obligations as the permitted scheme.
Viability Assessment and Housing Delivery
 The basic ground rules for viability review:
 identify variables that will impacts on
viability.
 be clear what will be revisited.
 set a realistic time horizon for the review.
 look to a mechanism to recoup provision.
 apply within a range.
 utilised at RM stage.
 but don’t ‘stifle’ future development.
Viability Inputs: Case Study
 Appeal relating to Land at the Manor, Shinfield,
Reading (8 January 2013).
 s106 costs – 10% margin of difference. Insp. - App.
higher cost.
 Prof. fees – LPA 8%/App. 10%. Insp. - 10% due to
complexity.
 Profit – agreed 25% of costs/20% GDV - but on
affordable LPA 6% /App. 20-25%. Insp. - 20%
 Sales Value – App. – 6 comparables (£271psf)/LPA – 3
comparables (£295psf). Insp. - £271 based on
character
Viability Inputs: Case Study
 Appeal relating to Land at the Manor, Shinfield, Reading (8
January 2013).
 Finance – agreed 7%
 Benchmark land value – LPA £1.98M / App. £2.32M . Insp.
£2.3M - no evidence for LPA and recent sales values for App.
 Competitive return – LPA £1.86M / App. £4.75M . Insp.
£4.75M – incentive and ‘the willing landowner’.
 Affordable Calc. – RICS says s106 ‘out of uplift in land value’
but ‘not all of it’ to incentivise. LPA argue owner entitled to SV
@£1.86M / App. Comp. Rtn. @£4.75M less 50% to s106.
Insp. – 50% of £4.75M – s106 costs plus 2% affordable.
Viability Inputs: Case Study
 Appeal relating to Land at the Manor, Shinfield, Reading (8
January 2013).
 Test the s106 costs against Reg.122
 Prof. fees, profit, finance etc - informed by scheme complexity.
 Sales Value – inform by viable comparables.
 Benchmark land value – reliable evidence base (often actual sales
value is better than any valuation).
 Competitive return – based on incentive and ‘the willing landowner’.
 Affordable Calc. – follow RICS guidance that s106 comes ‘out of
uplift in land value’ but ‘not all of it’ to incentivise.
Viability Assessment and Housing Delivery
Stuart Andrews, Partner
Head of Planning
Eversheds LLP
September 2013