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Site Viability – Get your ducks in a row early
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.


National and regional estimates of housing need in Wales
On 30 January 2019 the Welsh Government published its 2018-based national and regional estimates of overall housing need in Wales for 2018/19 to 2037/38. These estimates are intended to inform policy decisions, in particular in relation to the emerging National Development Framework (NDF) and future Strategic Development Plans (SDPs). However, Welsh Government has made it clear that the estimates are policy neutral and do not in themselves constitute housing targets. The national “central estimates” indicate a need for 8,300 additional dwellings per annum (dpa) for the first five years of the 20-year period (2018/19 to 2023/24), decreasing to an average of 3,600dpa during the last five years of the period (2033/34 to 2037/38). This slowing rate of growth mirrors that contained in the 2014-based household projections, which form the basis for the assessment. Excluding the existing unmet need element, the central estimates indicate a need for 5,417dpa between 2018 and 2038. By comparison, the previous estimates published by the Public Policy Institute for Wales in October 2015 indicated a need for 8,700 new homes per annum from 2011 to 2031. Does this mean that the need for new housing has significantly reduced? In our view, which seems to be echoed by Welsh Government policy statements, the answer is emphatically no! It is therefore important to understand the basis of these estimates and what they really mean for policy making. Table 1: National estimates of housing need: newly-forming households (5-year averages) Source: Welsh Government 2018-based estimates of overall housing need in Wales Five different scenarios are presented, based on different demographic and migration assumptions, with the national level of need ranging between 6,700 and 9,700dpa during the first five years. The central estimates for the three identified regions during the first five years (2018/19 to 2022/23) are: North Wales: 1,600dpa; Mid and South West Wales: 2,000dpa; and, South East Wales: 4,700dpa. Table 2: Regional estimates of housing need (5-year averages) Source: Welsh Government 2018-based estimates of overall housing need in Wales The Welsh Government has stated that the estimates will be reviewed “at regular intervals, as and when more up-to-date information becomes available”. However, at the time of writing Welsh Government is unable provide an indication as to when this will be. Methodology Following the approach pioneered by the Scottish Government in its Housing Need and Demand Assessment tool, the 2018-based housing need estimates have been calculated based on: Newly-arising need, as identified by the 2014-based household projections; and, For the first five years of the period only (2018/19 to 2022/23), existing unmet need, comprised of: a. Homeless households in temporary accommodation (Welsh Government homelessness data (June 2018)); and,b. Households that were both overcrowded and concealed (Census 2011). Figure 1: 2018-based housing need estimates: Methodology Source: Welsh Government Statistical Article (30 January 2019) / Lichfields Newly-arising need Whilst the estimates are identified as “2018-based”, they are actually derived from the 2014-based household projections. There are a number of concerns with the use of household projections as the basis for assessing housing need, principally stemming from their derivation from past trends. In the case of the 2014-based projections, the principal projection is based on trends experienced between 2009 and 2014. This data was therefore collected primarily during the recession years, which saw suppressed levels of household formation and reduced housing delivery. The 2014-based projections indicate a level of household growth that is 21% lower for Wales than the expected level of growth in the previous (2011-based) projections between 2014 and 2036[1]. The 2014-based projections also indicate a decline of 107,700 working age people (age 16 to 64) (5.6%). The direct translation of these household projections into housing requirements would therefore result in a smaller workforce and potential economic and social difficulties in future. While it is appropriate that the most recent household projections should form the starting point for housing need assessments in Wales, policy makers should recognise and seek to respond to the specific limitations of the 2014-based publication. In accordance with Planning Policy Wales (ed. 10) plan preparation should also take account of other key factors, including the alignment between housing and jobs, the need for affordable housing, and the objectives of the plan. In South East Wales, the Cardiff City Deal is seeking a step change to boost the local economy. A continuation of the past trends embodied in the 2014-based projections would be contrary to this strategy and could jeopardise delivery of the City Deal. It follows that housing requirement policies in the emerging NDF and future SDPs should seek to support the Welsh economy by providing a sufficient number of homes, and of a sufficient quality, to attract and retain skilled professionals and should not carry forward the recession-based trends in the most recent projections. Existing unmet need For the first time, the housing estimates take account of “existing unmet need”, i.e. existing households without a home of their own – but only for the first five years of the 20-year period. It is assumed that all of this unmet need, totalling 5,645 households, will be cleared within these five years. The Welsh Government has noted that unmet need figures will be updated when the overall estimates are reviewed. The Welsh Government has acknowledged that its assessment of existing unmet need is “likely to be an undercount”, as it does not encompass the full range of need for additional homes. In particular, it only includes concealed households where they were both concealed and overcrowded. Furthermore, single people are not identified as a concealed household under any circumstances, so any single person living in a shared household, for example with parents, or an older person living with an adult child would not be counted. This approach therefore underestimates the number of households in need of a home of their own. Even more troubling is the fact that the overcrowded and concealed household data is taken from the 2011 Census and is included as a number rather than a proportion of all households. These statistics are now dated. For comparison, we note that the total number of concealed families in Wales increased by 57% (+4,832 households) between the 2001 and 2011 Census[2]. While the Welsh Government’s inclusion of an element of unmet need in the housing estimates is to be welcomed, it is important to recognise that its approach significantly underestimates the actual level of unmet need. Tenure breakdown  The overall national and regional housing need estimates will be broken down by tenure in Spring 2019, to include the following sectors: Owner-occupier; Private sector rent; Below market rent; and, Social rent. We will be interested to see how the need for each of these tenures has been calculated and distributed. However, the crucial test will be during plan preparation to understand how these figures are applied in policy – and the extent to which they impact upon viability and deliverability considerations. [1] The common period covered by both sets of projections [2] Equivalent data from the 2001 Census on overcrowded and concealed households is not available.