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Reassessing land values

Reassessing land values

Simon Coop 20 Jun 2019
In April 2018, Holgate J handed down his decision in respect on Parkhurst Road Ltd (PRL) and Secretary of State for Communities and Local Government and the Council of the London Borough of Islington (“the Parkhurst Case”) (EWHC 991). This judgment related to a long running dispute over the proposed redevelopment of the former Territorial Army Centre on Parkhurst Road in Islington and focused in particular on the Council’s view that the scheme failed to comply with the Core Strategy requirement for 50% of new housing to be affordable. This has become a landmark case in relation to viability, with the key issue relating to the impact of land value on the viability of development. The judge expressed concern about the “circularity” that arises from purchase prices being: Based on a downgrading of policy expectation for affordable housing; or, Inflated due to overly optimistic expectations about the amount of development that might be permitted on site. Either scenario could result in argument being made that a policy-compliant scheme is not viable because of the amount paid for the land (a situation that occurred in the Parkhurst case). This concern has now been reflected in the revised NPPF and PPG which state that: The price paid for land not a justification for failing to accord with relevant policies; An “interpretation” of policy should not dictate the price paid for a site; and, Historic land values achieved in respect of non-policy compliant schemes should not be permitted to inflate current or future values. Going back to Parkhurst, the site was redundant, and it was agreed by both parties that it had a negligible existing use value (EUV) and no alternative land value. This created clear difficulties in trying to determine its value for the purposes of the viability assessment. The Claimant (PRL) had held throughout the two planning appeals that preceded the litigation that “an approach based on EUV with some uplift was inappropriate where the EUV of the site was negligible” (HCJ paragraph 23). This view was supported by the 2012 RICS Professional Guidance on Financial Viability in Planning which: “discourages reliance on the EUV Plus as the sole basis for arriving at site value, because the uplift is an arbitrary and the method does not reflect the workings of the market. Furthermore, the EUV Plus method is not based upon the value of the land if the redevelopment involves a different land use.” (HCJ paragraph 57) The Claimant’s first ground of challenge stated that the Inspector had erred in law because he incorrectly stated that the Council was promoting an EUV Plus method of valuation when that was not the case and that he “relied upon his erroneous misunderstanding of the Council’s position as one reason for not accepting PRL’s contention that a market approach was ‘the only reasonable means by which to establish land value’.” (HCJ paragraph 94). In dismissing this ground, Holgate J accepted that the Inspector had appropriately considered the EUV Plus method to be “preferable to a purely market value approach, allowing for value to have regard to the market as a consideration rather than the determining factor.” (HCJ paragraph 97) The relevance of the Parkhurst case is also underlined by the (rare) inclusion of a lengthy post-script by the judge. In addition to stating that the High Court was “not the appropriate forum for resolving issues of the kind” (HCJ paragraph 147), he called upon the RICS: “to consider revisiting its 2012 Guidance Note, perhaps in conjunction with MHCLG and the RTPI, in order to address any misunderstandings about market valuation concepts and techniques, the ‘circularity’ issues and any other problems encountered in practice over the last 6 years or so.” (HCJ paragraph 147). Following the judgment, the deputy mayor for housing of Islington Council also wrote an open letter to the RICS urging it to revise its 2012 guidance note. These calls have fallen on fertile ground. The EUV Plus method is now enshrined in the NPPF and PPG as the approach that should be taken in relation to land valuation, and the RICS is currently reviewing its guidance note, the revised version of which is expected to be subject to consultation later in the summer. In the meantime, the RICS has recently (May 2019) published a professional statement on conduct and reporting in relation to financial viability in planning. The purpose of this is to set out mandatory requirements for those involved in the preparation of viability assessments, emphasising the importance of impartiality, objectivity and transparency. Whilst important, this may be viewed as having limited interest beyond RICS members. However, it clearly points towards an EUV Plus approach to land valuation being enshrined in the forthcoming updated guidance note. Given the approach now required by the NPPF and PPG, this reversal of the approach previously endorsed by the 2012 note is not at all surprising. However, it will not overcome all of the problems associated with land valuation, and it will be interesting to see how the revised RICS guidance, any future changes to the PPG and the approach taken by local planning authorities and Inspectors address the following: What constitutes a reasonable premium: Under this approach, the “premium” should provide incentive and represent minimum that a “reasonable” landowner would accept for land. But how is that to be quantified? How to apply this approach when the existing land value is negligible or even negative (for example, due to very high remediation costs). The extent to which it is possible to apply a standardisation of the EUV Plus approach (particularly in the case of the to the typology approach to viability assessment that the NPPF requires as part of plan-preparation process), bearing in mind that there may be substantial differences in acceptable/appropriate uplift across a local authority area. Notwithstanding the requirements of the NPPF and PPG, how to achieve a widespread application of the EUV Plus approach by all involved in the development industry. How to ensure an equal playing field in relation to the consideration of land values and policy requirements: In a competitive market, how to ensure that those seeking to acquire sites do not keep losing out to those that continue to disregard policy expectations. The RICS consultation process will provide an opportunity to debate some of these issues, with the aim of increasing clarity for all involved in the development process – whilst also maintaining the flexibility that is essential in dealing with different sites in different areas. We will review the consultation draft of the guidance note when it is available but the debate about the appropriate land value to use for the purpose of viability assessments looks set to rumble on.

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Clarity about deliverability

Clarity about deliverability

Simon Coop 07 May 2019
In her recent blog, Abbie Connelly examined the implications of the Housing Delivery Test in the South West. This important measure, which was introduced through the revised NPPF, provides a new route to the Presumption in Favour of Sustainable Development, based on an assessment of past delivery against housing requirements. But the long established forward-looking indicator – the requirement to identify and maintain a five-year supply of deliverable sites – remains and, following the shock caused by the St Modwen Court of Appeal judgment[1], a much higher burden of evidence is now required to justify the inclusion of sites within the five-year supply. Despite nine months having passed since the revised NPPF was introduced, and three key appeal decisions dealing with the matter, it is clear that many LPAs continue to rely on evidence which artificially inflates the supply position by praying-in-aid of the St Modwen judgment. For some this is due to a failure to have updated their evidence whilst others appear to believe that it is business as usual due to the NPPF maintaining the following wording from the original framework: “To be considered deliverable, sites for housing should be available now, offer a suitable location for development now, and be achievable with a realistic prospect that housing will be delivered on the site within five years”. (NPPF Glossary definition of deliverability; my emphasis). Critically, however, the definition of deliverability also states that: “Where a site has outline planning permission for major development has been allocated in a development plan, has a grant of permission in principle, or is identified on a brownfield register, it should only be considered deliverable where there is clear evidence that housing completions will begin on site within five years.” (NPPF Glossary definition of deliverability; my emphasis). The Woolpit[2] and Woolmer Green[3] appeal decisions both reject the notion that the St Modwen case remains applicable in the context of the revised NPPF which “goes significantly further than the 2012 Framework” (Woolmer Green, paragraph 30). The implications of the new approach were summarised in these and the more recent Haslemere[4] appeal decision as follows: 1. Whilst sites with detailed permission (outline and Reserved Matters) are assumed to be deliverable; 2. There is no longer a presumption for the delivery of sites without detailed planning permission; as such, 3. The onus is now on the local planning authority to demonstrate that sites without detailed planning permission will be delivered within the next five years. Interestingly, whilst the Councils in the Woolmer Green and Haselmere appeals both sought to justify their housing land supply in accordance with the requirements of the revised NPPF, neither of the Inspectors were persuaded that the evidence was sufficient to comply with the new policy approach. So what would constitute clear evidence regarding the deliverability of sites? The PPG now provides clarity (at Reference ID 3-036-20180913) about the type of evidence that might be included, stating that this might include: “Any progress being made towards the submission of an application; “Any progress with site assessment work; and “Any relevant information about site viability, ownership constraints or infrastructure provision. “For example: “A statement of common ground between the local planning authority and the site developer(s) which confirms the developers’ delivery intentions and anticipated start and build-out rates. “A hybrid planning permission for large sites which links to a planning performance agreement that sets out the timescale for conclusion of reserved matters applications and discharge of conditions”. As set out above, the NPPF glossary definition of deliverable lists a number of different types of sites that could be included within the five-year supply, subject to the provision of clear evidence. No reference is made to sites within emerging local plans in the glossary definition. In paragraph 33 of the Woolmer Green decision, the Inspector concluded that these cannot be included with the five-year supply: “This is on the basis that it is for the local plan examination to assess these allocations in the round. In that forum, unlike a s78 inquiry, the [Examination Inspector] has contributions from all of the relevant stakeholders… I consider that as a matter of principle the Category 2 and 3 sites [sites allocated in the emerging Local Plan (2) and sites in the Green Belt allocated in the emerging Local Plan (3)] do not fall within the definition of available and offer a suitable location for development right now.” (my emphasis). Similarly, in a decision relating to an appeal in Bures Hamlet in Braintree District[5], the Inspector indicated that sites for which a resolution to grant planning permission subject to a Section 106 agreement should also be excluded on the basis that “uncertainty about when such an obligation would be completed could put back a potential start date by months or even years.” (paragraph 62). The revised NPPF has introduced a number of significant changes in relation to residential development. Whilst the fundamental requirements in respect of housing land supply remain intact, the revisions should be welcomed as a means by which a more rigorous approach to the analysis that underpins the establishment of a five-year supply inclusion of must be followed. If applied properly, it will ensure that the five-year supply will no longer include sites that are unlikely to come forward. This might mean that more authorities find themselves subject to Presumption in Favour of Sustainable Development, but it will represent a critical step towards the objective of “significantly boosting the supply of homes”. [1] St Modwen v (1) Secretary of State for Communities and Local Government, (2) East Riding of Yorkshire Council, and (3) Save our Ferriby Action Group (2017). [2] Land at East Side of Green Road, Woolpit, Suffolk (APP/W3520/W/18/3194926) 28 September 2018. [3] Entech House, London Road, Woolmer Green (APP/C1950/W/17/3190821) 26 October 2018. [4] Longdene House, Hedgehog Lane, Haslemere (APP/R3650/W/16/3165974) 10 January 2019. [5] Land off Colchester Road, Bures Hamlet, Essex (APP/Z1510/W/18/3207509) 27 March 2019.

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