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“It is the responsibility of site promoters to engage in plan making, take into account any costs including their own profit expectations and risks, and ensure that proposals for development are policy compliant.”
Similarly, in Wales, PPW (paragraph 4.2.19) explains that:
“At the ‘Candidate Site’ stage of development plan preparation land owners/developers must carry out an initial site viability assessment and provide evidence to demonstrate the financial deliverability of their sites.”
The rationale behind this frontloading exercise is reasonable as it seeks to ensure that all sites that are adopted in local plans are deliverable within the timescales of the plan and clearly for a site to be deliverable it needs to stack up from a financial perspective. However, the approach is not without its difficulties which we summarise below:
At the candidate site stage, it is unlikely (without having to spend an inordinate amount of money) that one promoting a site will have detailed information about ground conditions, drainage strategy, construction methods etc. Alongside this, the planning obligations that are likely to be sought (affordable housing, education and CIL) are also unlikely to be known at this stage. The lack of available information makes presenting a worthwhile viability assessment difficult, and in any case the obligations may reduce moving forward as further evidence on the viability of development comes to light.
The period of time between candidate site stage and the determination of the application could easily be 10 years or more in which time a number of prices and costs could have changed for example sales values, price of materials and cost of labour. In addition, new unknown costs may have been introduced (for example the introduction (in January 2016) of compulsory fire sprinklers in all new build housing in Wales, sustainability standards, or requirements for electric vehicle charging points).
The implication of these factors is that a scheme that is found to be viable during the plan preparation process might not be able to sustain the same level of affordable housing, s.106 or CIL provision when (years later) a planning application reaches determination. The current approach to the front-loading of viability suggests that a reassessment of viability would only be permissible in exceptional circumstances; no provision is made for regard to be given to the most normal of circumstances – the passage of time.
Notwithstanding the lack of information and the dynamics of prices and values, the requirement for viability assessment creates an additional expense that needs to be borne at a very early stage at risk. This could result in large fees being incurred by those promoting sites that may be incompatible with the Council’s preferred spatial strategy which will not have been publicly identified at the candidate site stage. The impact of this is likely to be disproportionately significant on small and medium housebuilders, despite the Welsh Government and MHCLG seeking to boost the delivery of homes from such operators. The same may also apply to landowners and social landlords meaning that, rather than encouraging a wider representation of sites in the planning process, an unintended consequence of the new approach might be a polarisation of those that are able to promote such land.
When considering the practical implications of this new requirement, one must ask whether local planning authorities will have the resources to review all of the sites, especially when viability assessments are normally dealt with externally by consultant surveyors or the District Valuer, and what impact it will have on the timescales for preparing plans?
The impact on the length of the Local Plan examination is also likely to increase given the need to review the Council’s viability assessment in much more detail.
A potential solution could be to allow candidate sites to progress to a later stage of the development plan process where there is some certainty that, subject to viability, the site has a good chance of being allocated before a viability assessment is required. At this stage, there will be more information about potential s106 costs and affordable housing requirements. Landowners may also have progressed deals with developers who will be able to finance further supporting documents (i.e. ground conditions, drainage, contamination) to better inform a viability assessment. This would then assist in avoiding abortive costs for proposers of sites that are not suitable.
However, this solution does not change the fact that significant time may pass between the viability assessment and the determination of the planning application. Whilst the respective governments are keen to remove viability assessments at the planning application stage we consider that it is inevitable that this will remain a key part of the development management process. This is because prices and costs are dynamic and there will be a need for the most up to date robust figures to be included within an assessment. This is allowed by MHCLG and the Welsh Government but dependent on exceptional circumstances being identified and substantiated by evidence. For example, PPW explains that:
“Such circumstances could include, for example, where further information on infrastructure or site costs is required or where a recession or similar significant economic changes have occurred since the plan was adopted.”
Despite these concerns, the front-loading of viability testing is here to stay and those promoting development either through development plans or planning applications will need to be aware of the need to take a more robust approach earlier on in terms of presenting viability evidence. It would be erroneous to assume that planning obligations can be remedied at application stage. However, there is also a risk providing too much information may mean that the site is deemed unviable and therefore not able to proceed to the next stage of the development plan making stage. A balance is clearly needed.
Lichfields has significant experience in providing robust viability advice for parties wishing to promote land through the development plan process and my colleagues and I are happy to discuss this.