08 Jul 2021
The issue of development viability is becoming an increasingly important battleground in planning and plan-making. There are several reasons for this, not least the issue of rising costs. The Covid-19 surge in house prices notwithstanding, there remains the potentially longer-term problem for the sector to accommodate the rising cost of labour and materials as well as the need for adaptable and flexible housing to meet the requirements of an ageing population and of achieving ‘net zero’ targets.
2019 changes to the NPPF and related PPG further underlined the importance of viability. The changes point towards the ‘frontloading’ of viability assessment to the plan-making (rather than the decision-taking) stage and the greater requirements for the standardisation of inputs that have evolved as a result. Perhaps one of the most important takeaways from the amended guidance is the following quotation:
“The price paid for land is not a relevant justification for failing to accord with relevant policies in the plan. Landowners and site purchasers should consider this when agreeing land transactions.” [Paragraph: 002 Reference ID: 10-002-20190509]
Developers are now required to engage early on viability issues – the option of negotiating at application stage is now no longer a realistic option unless ‘particular circumstances’ justify the need to. At Lichfields, we have questioned whether the practical implications of this approach could actually disadvantage the smaller players in the market who will not necessarily have the same resource as volume builders at their disposal to absorb the costs associated with earlier engagement.
Two years on from the publication of changes to the NPPF and related PPG, there are still quite significant misunderstandings in the industry about the implications of the changes. Whilst relevant case law helps to provide further clarity on the interpretation of particular aspects of the guidance, we are still not much further on in terms of how to deal with issues of standardisation in viability assessment.
To this end, our forthcoming Insight (subscribe to Insights to get it sent to your email) aims to fill a gap by bringing together a comprehensive analysis of evidence submitted to local plan and Community Infrastructure Levy (CIL) examinations. It covers a total of 93 local authorities across England and in Wales, reflecting a broad coalescence of policy approach between the two.
Our findings therefore reflect the distillation of a large body of evidence on the assumptions and approaches used in undertaking viability assessments for housing development in a local plan context and for local plans (and CIL charging schedules) that were found sound at examination. In this way, we hope that the findings will be useful to a wide range of users and will assist in providing a broad framework for the standardisation on inputs/approaches.
Further detail can be found by reading the Insight, but overall, we distilled our findings down to three main areas:
Factors with a common methodology;
Factors with a narrow range of values/figures; and,
Factors with a broader range of values/figures.
It is important to note that the above findings are intended to guide practitioners to ready-reckoners and ranges for which there has been broad coalescence based on a review of the evidence. They should not be used dogmatically, and it should be emphasised that such an approach cannot account for all eventualities – there will inevitably be specific circumstances that justify the application of alternative inputs.
How Lichfields can help
Whilst the issue may have traditionally been viewed as the exclusive realm of agents/valuers, changes to the NPPF/PPG mean that viability is now central to the plan making process and site deliverability. Viability is therefore now critical to planning policy and practice. In particular, the shift towards the standardisation of inputs allows a greater role for planners who can focus less on the assessment of individual input assumptions and concentrate more on how the issue dovetails with other planning considerations. This is perhaps also reflected in the recent update to the RICS guidance note on viability which directly responds to the changed planning context.
As a leading planning consultancy, we have a unique and deep understanding of the interface between viability and planning which others may not be able to offer. We have extensive experience of supporting clients at plan examinations on planning and more recently on viability issues.
Please get in touch if you would like to discuss how we might be able to assist.
RICS (2021) Assessing viability in planning under the National Planning Policy Framework 2019 for England. Guidance Note England 1st edition, March 2021 https://www.rics.org/globalassets/rics-website/media/upholding-professional-standards/sector-standards/land/assessing-financial-viability_final.pdfR (Holborn Studios) v London Borough of Hackney(2020)
17 May 2018
In the draft National Planning Policy Framework (NPPF) and associated draft Planning Practice Guidance (PPG) that were recently consulted on, there was a welcome, albeit brief, nod towards the benefits that new development can bring to a local area. The draft guidance states that local authorities should do more to publicise the local environmental improvements (e.g. to highways, open space and education) that developers make contributions towards. It is suggested that this could be achieved through on-site signage or even designing websites that help to inform the public about exactly what new developments are contributing to their local areas. From a development industry perspective, anything that helps to encourage public support for new development is welcome.
One issue, however, that is persistently absent in terms of helping achieve widespread public support is the impact of new development - particularly new housing - on local house prices. Most people have an understanding of the factors that can affect house prices; it is well known that the location of a nearby station, or a school with an ‘Outstanding’ Ofsted rating can increase the desirability of an area and can, over time, increase property values. New housing development, by contrast, is often cited as a factor that will adversely affect the value of nearby properties and local support for new housing development can weaken as a result. Despite this not being a material consideration in planning decision-making, it is still of course a concern for local residents, given that a house, for many, is likely to represent one of their largest financial outlays and investments.
Clearly, there is a need to improve understanding of how 'microscale' factors affect house prices at a local area level. The challenge associated with this is in distinguishing the effects on house prices that are directly attributable to any one particular factor from a range of other complex factors. This problem is felt more acutely at a local level, where a reduction in scale coincides with an increase in the significance of factors that are location-specific.
At Lichfields, we have carried out research that has adopted an evidence-based approach to this topic, by examining the ‘house price effects’ across 26 new housing sites in the North East of England. Sites sampled ranged in terms of their size, density, character, relationship to existing urban form, previous use classification and of course the surrounding housing market strength. The principal aim of the research was to develop a simple, yet robust methodology that quantifies house price change within a local area. Our Insight Focus outlines the approach taken and describes the results in more detail.
What we have found is that there is no strong evidence to suggest that adverse effects on property values took place in areas surrounding new housing development. In fact, when aggregated across all sites, a positive price effect of around 4% was determined. The methodology for measuring house price change, combined with a highly-localised sampling strategy, gave us a degree of confidence to conclude that new local housebuilding is highly likely to have a major impact on the observed positive price effects. In fact all seven of the local authorities sampled demonstrated positive price effects, with County Durham, North Tyneside and South Tyneside performing well in this respect. The results also suggested that greenfield and rural-urban fringe sites performed marginally better than brownfield and urban sites. Within the context of the North East housing market, mid-range value areas performed the best.
In almost all of the 26 new housing sites the point after which the first unit sold coincided with an increase in housing market activity (number of transactions) that was independent of the new build sales. This suggests that new housing can actually re-invigorate a local housing market, possibly by triggering a displacement effect. This could also help to explain the mechanism by which local area house prices may rise as a result of new housing development in the area.
Whilst we are keen to acknowledge the limitations of this research - it’s relatively narrow geographical focus and moderate sample size being two - we also recognise the potential for this type of study to be carried out in other regions of the UK. Our research contributes to an improved understanding of local area level house price change and if conducted in other areas too, could be a way of reassuring local residents that new homes in their area will not adversely affect their house price. This could in turn support more positive public engagement locally, when planning for new homes.
See our other blogs in this series:
National Planning Policy Framework review: what to expect?
Draft revised National Planning Policy Framework: a change in narrative
NPPF consultation proposals – what could they mean for town centres?
NPPF consultations – what could they mean for designers?
Draft NPPF: heritage policy is conserved…
Draft NPPF: implications for aviation?
Draft NPPF: Business as usual?
Draft NPPF: more emphasis on healthy and safe communities
Lichfields will publish further analysis of the consultation on the revised NPPF and its implications. Click here to subscribe for updates.