Planning matters blog

A light at the end of the tunnel or stuck at the station?

Nicholas Mills 30 Jan 2020

Following the recent Tory election victory, where seats were secured in a number of traditional Labour strongholds, the Government's attention appears to have once again turned to the North. As the Country awaits the March 2020 budget announcement, this blog looks at some of the potential benefits of proposed transport infrastructure provision in the north, and the implications for its delivery.

One of the key issues in the North is inadequate transport connectivity which acts as a barrier to attracting investment. This also means that firms cannot tap into the labour market and get the skilled workers they need. A number of infrastructure initiatives are proposed to help address this issue including Northern Powerhouse Rail and HS2 and these initiatives have been carried forward into a range of strategies and transport plans.

For example, the Transport for the North [TfN] Strategic Transport Plan sets a number of objectives to achieve a vison of “a thriving North of England, where world class transport supports sustainable economic growth, excellent quality of life and improved opportunities for all” ^[1] including increasing efficiency, reliability, integration, and resilience in the transport system. It seeks to realise the benefits of agglomeration and economic mass, in the North by providing faster, more efficient, reliable and sustainable journeys on the road and rail networks. Under the transformational growth scenario outlined in the plan, it notes that growth is expected in high and medium-skilled occupations (an increase of 35,300 and 1,600 jobs per annum by 2050, respectively).

In addition, the Greater Manchester Strategy, which provides a framework for the Local Industrial Strategy, states that it will capitalise on the investment planned at Manchester Airport, including the arrival of HS2 and Northern Powerhouse Rail, to strengthen Greater Manchester as an internationally competitive employment location. It emphasises the importance of delivering this infrastructure in order for Greater Manchester to achieve economic growth and states[2]:

“Given the decision to withdraw from the European Union, we need to focus on maximising our existing competitive advantages. Greater Manchester has always been an outward looking city with a rich history of global trade and welcoming of diversity and talent. Remaining open, international and connected will be ever more important in the coming years. As the heart and driver of the Northern Powerhouse economy, we need to prepare for, and take advantage of, the transformational opportunities major infrastructure improvements, such as HS2 and Northern Powerhouse Rail, will provide”.

The Strategy notes that a skilled workforce is essential to deliver the key infrastructure projects on which prosperity depends. It emphasises the need to bring together policies and investments around housing and transport to create inclusive, sustainable, growth locations. To provide one example of the amount of employment which may be generated by these strategic infrastructure improvements, GMCA growth and reform plans ^[3] suggest that the HS2 hub at Piccadilly station has the potential to create 30,000 additional jobs in the immediate vicinity of the station.

We are also seeing initiatives in the wider North West to help maximise the benefits of new infrastructure provision, such as the Crewe Hub Area Action Plan, which establishes a development framework to facilitate and manage development around a future HS2 station within the town. The proposals include a new commercial district, mixed use commercial and residential development within walking distance of the station, advanced digital infrastructure and vastly improved physical connectivity to the station, supported by environmental and social infrastructure. Development strategies suggest growth at Crewe of around 7,000 new homes and 37,00 new jobs by 2043 as part of this process.

Source: The Potential of Northern Powerhouse Rail – Transport for the North

However, there is a long way to go and those with experience of using the northern rail network will be familiar with delays, slow services, and poor carriage quality which have contributed to the Government’s recent decision to nationalise Northern Rail. This does however help create new possibilities for the future of services in the northern franchise area.

One of the key initiatives for ensuring that sub-regional connectivity is improved is Northern Powerhouse Rail. This would offer much faster, more frequent and reliable rail links and open up new opportunities for people and businesses by linking the North’s six main cities. At the moment, fewer than 2 million people in the North can access four or more of the North’s largest economic centres within an hour. This would rise to 10 million once Northern Powerhouse Rail is delivered; transforming the job market and giving businesses access to skilled workers.

The Prime Minister recently gave his backing for the Leeds to Manchester route which would reduce travel time between the two cities from 50 minutes to less than 30. Major upgrades to four stations, the electrification of lines and the installation of more railway tracks are part of a planned £2.9bn upgrade of the route. Whilst this has been greeted with optimism from some, Liverpool Metro Mayor Steve Rotheram has questioned the focus on Transpennine connectivity over routes linking Liverpool and Manchester.

The delivery of both HS2 and Northern Powerhouse Rail, in tandem, would arguably do most to achieve economic prosperity and continue to encourage investment in northern businesses. However, it is still not certain whether either scheme will fully deliver.

The cost of HS2 in particular has been subject to criticism from some quarters recently, perhaps most vociferously from Lord Berkeley, the former deputy chair of the Oakervee Review into HS2, who, in his own review of the scheme has claimed the project costs are likely to soar to more than £108 billion. This is almost double from the £56bn expected in 2015. So, it is no surprise to learn that the Transport Secretary, Grant Shapps, requested more data before making a decision on the scheme.

There are currently various levels of commitment to each section of HS2 and the future of the whole network is uncertain. For example, the Rail Reform and High Speed Rail 2 (West Midlands - Crewe) Bill, which gives the powers to build and operate Phase 2a between Birmingham and Crewe, passed through the House of Commons and had completed Second Reading in the House of Lords before the dissolution of the previous Parliament, and was covered in the December 2019 Queen’s Speech. However, reference to Phase 2b, the eastern link of the route, connecting the East Midlands into Yorkshire, was absent in the Queen’s Speech and there have been media reports that Phase 2b could be dropped. A decision on the future of HS2 is expected imminently.

The fate of other schemes has still also yet to be sealed. For example, the proposed £560m ‘Northern Hub’ to increase capacity within a bottleneck at Manchester Piccadilly station, first announced by George Osborne in 2014, has yet to reach fruition.

Over the coming weeks and when the Chancellor’s budget is revealed on 11^th March it should hopefully become clearer whether there is a light at the end of the tunnel or whether we will still be stuck at the station.

[1] Transport for the North Strategic Transport Plan, page 6[2] Our People, Our Place: The Greater Manchester Strategy §6.2[3] A Plan for Growth and Reform in Greater Manchester, March 2014

Where the constant is the variable - RICS Draft Guidance on Viability in Planning

Owain Nedin 29 Jan 2020

Following the Parkhurst Judgment[1] and the advice that Holgate J appended to it, RICS were somewhat obligated to update its guidance on the practice of appraising development viability (see my colleagues blog for more details). This process began in May 2019 with the publication of 1^st edition of a new RICS Professional Statement on “Financial viability in planning: conduct and reporting”.

RICS has since followed with the publication of a consultation draft “Assessing financial viability in planning under the National Planning Policy Framework for England, 1st edition”.

The consultation runs until February 9^th 2020.

https://consultations.rics.org/consult.ti/financialviabiltygn/consultationHome

RICS context

The focus of the RICS document is the role a Financial Viability Appraisal (FVA) might play in plan making and decision taking. The document neatly sums this up on pages 19-20:

“The purpose of an FVA estimates whether planned developments with policy-compliant levels of developer contributions are able to provide:

a minimum reasonable return to the landowner (defined as the EUV plus a premium), and
a suitable return to the developer.

If the FVA shows that the specified landowner and developer return are not enough to satisfy these benchmarks, the development typology is unviable at the level of developer contributions being tested at the plan-making stage. Similarly, a development site is unviable at the level of developer contributions set out in the plan at the decision-taking stage. If the FVA illustrates that the typology or scheme is not viable, the plan-maker will need to adjust policy requirements (for example by reducing developer contributions or changing design standards) to return the typology or scheme to one that is viable. Amendments to the scheme (such as increasing density or altering the mix of uses) may have a similar result.”

The revised RICS guidance now aligns with the PPG in respect of the importance given to ensuring that Local Plans are robustly tested to deliver their objectives.

On first glance, the RICS guidance suggests that if a site is not found to be viable, the contributions asked of it must be reduced. However, the RICS now aligns itself with the new PPG to ensure that the many variables of a FVA are set so as to ensure the site does all that it can to maximise contributions it makes.

There are a significant number of variables that could be considered (including Existing Use Value, Costs, Sales values, late stage reviews etc.), however for the purpose of this blog we consider the two that go to the heart of the RICS FVA:

Developers profit/return; and,
Landowner incentive to sell.

Developer Profit/return.

The PPG considers a reasonable return to the developer of 15-20% of Gross Development Value (GDV) – although it notes that a lower return may be more appropriate in certain circumstances, where risk (presumed market enabled) is reduced. This approach is supported by the RICS guidance which makes it clear that the target return is risk adjusted and therefore already compensating the developer for taking on the risk of development (in other words – the profit is the reward for the market risk, if this risk is reduced then the profit target should fall). An example of this can be seen in respect of affordable housing, which has lower market risk and therefore a reduced return is more generally accepted.

RICS guidance, aligns with PPG, agreeing that on occasions ”much lower rates of return should be used” (pg. 28), subject to the use of appropriate evidence. This seemingly gives the plan maker/decision taker opportunity to adjust developer profit as a means by which to deliver policy expectations. In this sense perhaps setting Developer Return at a standard 20% on GDV for all forms of development should be approached with some caution.

And as the RICS guidance is at pains to point out – “where land is overpriced in relation to plan policy, profitability will have been sacrificed and it is not the role of an FVA to protect the developer return in these circumstances.” (pg. 33).

Landowner Incentive to sell (the premium)

The “EUV plus” relies on setting an existing use value (a debate for an entirely different blog) plus a premium which offers the land owner a reasonable incentive to sell – thus setting a benchmark land value (BLV). The RICS guidance makes it clear that in setting the premium it should still allow for policy requirements to be met, in line with the PPG.

Whether it’s at plan making or decision taking stage, the premium must allow for a reasonable incentive to sell whilst having regard for the policy requirements. But as the RICS guidance (pg. 36) points out, “there is no standard amount for the premium, and each assessment needs to the properly evidenced”. This reflects the approach taken by Holgate J in Parkhurst who emphasised that a simple percentage uplift would be inappropriate – one size does not fit all circumstances. Scope therefore exists for a flexible approach to setting a premium to allow development to meet policy expectations. It is for the plan maker/decision taker to make the final decision on the appropriate amount.

Who blinks first

If properly evidenced, reasonable adjustments to Return and Premium may be appropriate if it can maximise public benefits from development. But what happens in marginal cases and where do you draw the line before adjusting policy expectations in lieu of seeking to reduce Premium or Developer Return?

The panacea is clearly a plan-led approach whereby site viability is established at the outset allowing (Evidenced Council adjusted/agreed) developer return and premium whilst delivering schemes with contributions meeting identified local need. And if market conditions have changed prior to the submission of a planning application, the Council may need to adjust its required contributions and/or the developer return, accordingly.

However, life is not so straight forward. The guidance and policy are designed in such a way that they contain a significant number of variables, many of which are to be determined by the Council. For the developer this creates significant uncertainty. If Councils are able to set premiums and reduce return levels then developers may be left with sites that become marginal or not viable despite having been purchased on seemingly reasonable assumptions. Likewise, at plan stage, it risks stalemate in land release if premiums are set too low removing incentive to sell.

But the jeopardy is not just for the developer. How does a local authority deal with meeting its targets and delivering infrastructure through contributions if plan stage viability shows that to do so offers no reasonable developers return or incentive to sell? Do Councils have to push their emerging Local Plans through regardless, making viability the new battle ground at Examinations or do they sacrifice infrastructure delivery in order to release housing sites by reducing contributions – risking unsound Plans on the basis of failure to meet their wider needs?

The existence of risks for both sides will necessitate collaboration if plans are to be found sound and sites are to come forward for much-needed development.

The RICS guidance does what it needs to do, in the same way the PPG does. Neither could reasonably be expected to provide more detail or certainty. Afterall, as the RICS guidance points out “Land and property markets are cyclical, and the impacts of developer contributions change in periods of both economic/market upturn and downturn” (Pg. 16). Not to mentions the extreme variables between land parcels. To be more prescriptive would be to risk being out of date or irrelevant the moment pen is put to paper. Both PPG and RICS now move in the same direction – and that should be welcomed – however the scope for uncertainty and complications remains.

[1] Parkhurst Road Limited v SSCLG and London Borough of Islington (2018) EWHC991 (Admin)

Vacant Building Credit in 2020

Rebecca Hilton 23 Jan 2020

How is it 2020? My 2018 blog on Vacant Building Credit [VBC] seems so long ago. We have had two iterations of the National Planning Policy Framework [The Framework] since. The PPG has been updated. Many Local Planning Authorities have released their own guidance on VBC. As a result VBC is becoming more widely recognised as a useful mechanism for boosting the viability of brownfield sites.

The Policy

To recap, VBC was introduced by a written ministerial statement of 28 November 2014 as an incentive ‘… to tackle the disproportionate burden of developer contributions on small-scale developers, custom and self-builders ’. Its introduction was challenged in the High Court and the VBC guidance was subsequently – but only temporarily -withdrawn. The Government appealed the decision and it was reinstated in the PPG in May 2016.

Since July 2018 VBC has been referenced at paragraph 63 of the Framework. It states:

Provision of affordable housing should not be sought for residential developments that are not major developments, other than in designated rural areas (where policies may set out a lower threshold of 5 units or fewer). To support the re-use of brownfield land, where vacant buildings are being reused or redeveloped, any affordable housing contribution due should be reduced by a proportionate amount²⁸. [emphasis added]

The accompanying footnote states:

Equivalent to the existing gross floorspace of the existing buildings. This does not apply to vacant buildings which have been abandoned.

The inclusion of a reference to VBC in the Framework, in addition to the 2014 Ministerial Statement, shows that the Government continues to consider it an important policy for decision making.. It emphasises the importance in considering the planning and related viability implications of demolishing a building(s) prior to the grant of planning permission. Demolishing following the grant of planning permission can often greatly assist making brownfield sites viable options for development.

A number of local planning authorities have incorporated guidance on vacant building credit into supplementary planning documents or other guidance documents. Whilst the approach should broadly be in accordance with the Framework (or local plan) such guidance has been found to include detail on a Council’s interpretation of ‘vacant’ or ‘abandoned’ and in some cases Council’s set out that only net floorspace will be considered in the VBC calculation.

For example, Warrington Council provides guidance on vacant building credit within its Planning Obligations SPD. It requires applicants to demonstrate buildings have been vacant for 12 months and that the building(s) have been satisfactorily marketed. This is a relatively common approach, but applicants should have an awareness of the criteria the relevant local authority applies when considering VBC, to avoid delays at the stage of planning application submission.

So….to demolish or not to demolish?

You may be reading this and have a site with a vacant, unused building or number of buildings. You will likely be considering whether to demolish or not to demolish. What is the benefit of retaining a vacant building and what difference could VBC make?

The following demonstrates how VBC is applied in practice. It gives an example of a site that has 18,000 sq. m (gross) of vacant floorspace. The example demonstrates the affordable housing requirement with the building retained on site. It is then explained what the impact of demolishing the building would be to the overall affordable housing requirement. The key inputs are:

Existing gross floor area: 18,000 sq. m
Proposed gross floor area: 23,000 sq. m
Affordable Housing Requirement 30%

The formula to calculate site affordable housing requirement is as follows:

(Difference between proposed and existing floorspace / proposed floorspace) * policy requirement

VBC Applied


	Difference between proposed and existing: 23,000 – 18,000 = 5,000 Divided by proposed floorspace: 5,000 / 23,000 = 0.22 *Multiplied by affordable housing requirement: 0.22 30% = 6.5%**

The affordable housing requirement if the building is not demolished is therefore 6.5%. If the building was to be demolished the Council’s standard affordable housing requirement is 30%.

To demonstrate in terms of housing units; a development of 23,000 sq. m could be the equivalent of 271 homes at c.85 sq. m per unit. A 30% requirement would mean 81 affordable homes on site compared with 18 if the building is retained and VBC is applied.

In real terms if those houses were on the open market at £2,150 per sq. m. (circa £200 per sq. ft.) then revenue would increase by over £4.61m (assuming a value of 60% of OMV for the affordable homes). This represents a significant loss of income that arises simply because of the premature demolition of a building.

This is clearly a significant reduction in affordable housing requirements and a significant uplift in revenue. It should leave you to think twice before demolishing existing vacant buildings on development sites. In a world where viability assessments are becoming increasingly protracted and difficult, this represents an important policy tool to improve delivery of brownfield sites.

Community Infrastructure Levy

Furthermore, albeit that it is a separate calculation, in areas where a Community Infrastructure Levy (CIL) charging schedule is in effect, demolishing a building may reduce the amount of “in-use” floorspace that can be deducted from the area of a chargeable development to reduce CIL liability.

Summary

Vacant building credit can do one of two things; remove any affordable housing contribution or reduce it. Depending on the floorspace of the building or buildings on site, the cost implications and resulting viability for development can be substantial. The worked examples above demonstrate the significant impact VBC can have on affordable housing requirement and the financial viability of a development.

Lichfields and VBC

Since publishing the blog in 2018 at Lichfields I have been involved in a number of schemes where vacant building credit [VBC] has been applicable.

In considering eligibility for VBC the case and associated calculations can be included within a planning statement or we also prepare supplementary or standalone Vacant Building Credit Notes. These provide the policy context, demonstrate the eligibility of a scheme for VBC and undertake the calculation on VBC to illustrate the resulting implications for the affordable housing contribution. Work we have undertaken to date has ensured our clients have been able to secure or are currently working towards securing viable planning permissions that without VBC may not have been deliverable. Where a CIL charging schedule is in effect, we can also provide advice on CIL liability.

[1] West Berkshire District Council and Reading Borough Council v Secretary of State for Communities and Local Government [2015] EWHC 2222 (Admin)[2] Written Ministerial Statement (WMS) of 28 November 2014

Planning application fees in Wales are increasing – but will the service improve?

Arwel Evans & Abbie Connelly 20 Jan 2020

On the 16^th December 2019, Welsh Government issued a consultation proposing changes to planning application fees. Essentially, what is proposed is an increase across the board of approximately 20%, the first increase in application fees in Wales since 2015. This appears to be an interim proposal, with the Welsh Government explaining that it will carry out further research in due course to understand the true cost of running development management services. As an example, they say that their evidence demonstrates that minor and householder applications typically cost much more to determine than the fee set by legislation, even with the proposed 20% increase. From our experience, the same could be said about s.73 applications which currently attract a fee of £190, but as we know, can be as complex and time consuming as a full application.

The consultation document explains that a Local Planning Authority’s (LPA) primary source of funding is generated from fee income received from determining applications, which are intended to recover the costs for providing the service. However, the costs of running development management services is currently not being met. This is for a number of reasons including additional requirements on development management services due to revised legislation, changes to regulations and policy as well as cutbacks to planning departments as a result of cuts to local government funding.

The Welsh Government explains that, alongside general budget cuts of approximately 53% to planning services between 2009 and 2017 the lack of funding secured by application fees could have an impact on the quality and timing of planning decisions. Its evidence suggests that the current fee levels for applications is not sufficient to run an efficient development management service.

Whilst the current fee structure set out in the 2015 Regulations saw the most recent planning application fees increase in Wales, over the border in England, planning application fees were increased by 20% in 2017. At the time the Royal Town Planning Institute (RTPI) commented that:

“planning fees, even with an increase of 20% recently, only cover 40% of the overall running cost of development control services in England” suggesting that there is still a long way to go before planning departments can fully recover their costs.”

It is therefore important to note that a 20% increase may not be a panacea to a fully functioning planning service.

So, what will this mean to those that regularly submit planning applications? Below we have set out the proposed application fees for a range of different applications going forward:

The below are theoretical examples only and should not be relied upon when calculating planning application fees. Please contact Lichfields if you require advice on calculating your planning application fee.

We also note that it is proposed that the maximum fee limits will increase. For full applications for residential development the fee limit is proposed to increase from £287,500 to £300,000 and for outline applications the fee limit is proposed to increase from £143,750 to £150,000 respectively.

Whilst an increase in application fees is not something that any developer would necessarily wish for, developers may conclude that paying slightly more may be worthwhile, but only if the service they receive from a planning department improves in line with the fee increase.

Welsh Government statistics[1] show that the average time taken to determine ‘major’ applications in 2017/2018 was 240 days and that only 67.4% of applications were determined within the statutory time periods. The additional income as a result of this increase could in theory provide additional funds to recruit additional staff, which should potentially improve the quality and speed of service. However, a key question is whether the additional income generated is ringfenced for re-investment to the planning department (and associated internal consultees e.g. transport and drainage officers) as opposed to being used for wider local authority services. The consultation paper is unsurprisingly mute on this point.

As is explained in the consultation paper it is also important that local government funding for planning departments is not cut further as a result of the additional income generated by the increase in fees. Otherwise, the rationale for the 20% increase cannot be justified and it is likely that the planning service will see a further deterioration, rather than the intended improvements in efficiency and quality.

The RTPI’s research[2] into the “value of planning” reports that the planning system contributed £2.35 billion to the Welsh economy in 2016-17. Therefore, given the importance of the planning regime in realising social, economic and environmental benefits it is crucial that the Local Planning Authorities are properly funded. It is hoped that the increase in planning fees will assist in securing faster and better decisions from the LPAs, which is in the interest of the applicant, the authority and the general public – not to mention the economy.

Comments are invited on the consultation document until 13 March 2020.

[1] All Wales Planning Annual Performance Report 2017-18[2] The Value of Planning in Wales

Planning matters

A light at the end of the tunnel or stuck at the station?