Both the English and Welsh planning systems through the National Planning Policy Framework (and Planning Policy Guidance) in England and Planning Policy Wales (and the Development Plans Manual) in Wales respectively have recently moved towards a policy of requiring viability assessments for sites at an early stage of the development plan making process.
In England, the PPG (Paragraph 002 Ref ID: 10-002-20190509) states:
“The role for viability assessment is primarily at the plan making stage.”
“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:
Lack of information at the early stage of plan making
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 passage of time between the viability assessment and the planning application
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.
Yet another hurdle to navigate
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.
Impact on the timescales for preparing a local plan
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.
So, what is the solution?
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.
On 25th February 2016 the Use Classes Order (1987) was amended in Wales to introduce a new C4 use class, which has been in place in England since April 2010. Use Class C4 covers the use of a dwelling house by not more than six residents as a House in Multiple Occupation (HMO). Prior to the introduction of this use class, landlords could convert a standard dwelling to a HMO of up to six people living together as a single household without the need to apply for planning permission. Now, this conversion will constitute a material change of use of the land from use class C3 (Dwelling House) to C4 (HMO) which Councils will be able to assess against their statutory development plan. Meanwhile, converting back to C3 from C4 does not require planning permission as it is considered permitted development.As a consequence of this amendment, Local Planning Authorities (LPAs) will possibly have more control over the number and location of HMOs within their area. LPAs would most probably argue that this is a positive given that a high concentration of HMOs can create transient communities as well as contribute to parking and waste problems (45% and 51% of students in Cardiff and Swansea respectively live within the private rented sector.) Other issues, perhaps more important, include valuable family housing being lost from the housing stock and converted into HMOs, making it increasingly difficult for first time buyers to access the housing market. It remains to be seen if Councils will refuse planning permission for HMOs going forward and if this will see more HMOs reverting back to family housing.This brings us on to the subject of purpose built student accommodation (PBSA). PBSA has become increasingly popular recently for developers and for students. The benefits for students are clear: often, a better standard of living, on-site facilities as well as increased security and the benefit of not having to deal directly with landlords/agents. PBSA is proving to be a clear attraction for students and its recent proliferation has seen numerous students opting for PBSA in preference to HMOs. This is likely to lead to the traditional inner city homes that have hitherto provided the mainstay of student housing, potentially converting back to family homes, which may be no bad thing.
Understandably, the relatively cheap cost of renting a room within a HMO will still hold some appeal to students outpriced by PBSA which implies that HMOs still have an important part to play in the supply of student accommodation.However, PBSA is not without its own planning complexities with regards to how schemes are considered by LPAs. Generally, PBSA is classed by LPAs as a Sui Generis use as it does not fall within any specific use class. NLP’s experience is that PBSA is evidently different to conventional residential housing (C3) and is arguably more akin to a hotel (C1) in its operation as it includes management personnel and on site facilities such as laundry, reception and common rooms, but the approach of dealing with PBSA applications differs dramatically from one LPA to another.However, we have also seen instances of LPAs requesting that applications for PBSA specify the use class as C2 (residential institutions), C3 (dwelling houses) or C4 (HMO), depending on the particular circumstances. Some LPAs argue that a PBSA comprising studio flats should be classified as C3 due to the fact that studios include their own kitchen and bathroom. On the other hand, some LPAs argue that PBSA comprising cluster flats of up to 6 people should be classified as C4.Uncertainty around the specification of a specific use class for PBSA has enormous implications for the sector, especially if LPAs start requesting affordable housing contributions on PBSA applications that fall within Use Class C (even though the nature of the accommodation is quite clearly different to open market housing). Prominently, this would have an impact upon development viability. For example, Oxford City Council has an adopted policy which states that planning permission will only be granted for new student accommodation that includes 20 or more bedrooms if a financial contribution is secured towards delivering affordable housing elsewhere in Oxford. (With the sum in Oxford amounting to £140 per sq m, a notional PBSA scheme of 5,000 sqm would need to pay £700,000 in financial contributions).Given the relatively recent boom in PBSA development, the correct approach with regards to the use class of PBSA is yet to be tested in a court of law and therefore the varying approaches of LPAs looks set to continue into the future. However, what is clear in the current market is that PBSA is a form of development that is becoming increasingly popular for students and developers alike and there are implications of this, not only on supply of student accommodation but also on the fabric of some areas with traditionally high concentrations of students. This could lead to a perceptible number reverting to family homes – without the need for planning permission, of course!
 A HMO of more than six residents continues to be classed as Sui Generis. Oxford City Council’s adopted Sites and Housing Plan considers that 20% of buildings in HMO use within a 200 metres’ length of street is likely to result in over concentration. Cardiff Council’s draft HMO SPG also uses the same threshold. This is the approach taken by NLP on a site in Swansea for 750 student bedspaces comprising studio and cluster flats as well as communal and management areas.