Guest speaker: Lizzie Cullum (Savills)

savills.com Viability Testing of CIL and Local Plans Effective Practice Lizzie Cullum BA (Hons) MRICS Surveyor, Cambridge Development 11 February 2014

The emerging CIL picture Contents Aligning objectives Balancing risk Achieving consistency – benchmarking CIL

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Source: Savills Savills CIL Map Implemente d CILs

The national position Source: Savills, 24 January Committed to CIL 75 Producing their evidence base 67 Preliminary Draft Charging Schedule stage 27 Draft Charging Schedule stage 36 Examination stage 31 Charging Schedule Adopted or Implemented

Influencing charging schedules: Key observations  Viability  Differential rates  Factoring Section 106  Risk to the delivery of windfall development  Progression of CIL  Delays

Wide variation in the emerging rates of CIL Source: Savills

Synergy of objectives Local authority Land to come forward for development to meet Local Plan objectives including housing targets Developer Land to come forward for development to deliver the return on capital expected by corporate investors

The third dimension Local authority Land to come forward for development to meet Local Plan objectives including housing targets Developer Land to come forward for development to deliver the return on capital expected by corporate investors Landowner Return to landowner for it to be released for development

What is a competitive developer return? House builder objectives have shifted from volume to margin, to meet market expectations Competitive return across the cycle = 20%+ margin on revenue across the market cycle

Does CIL come out of land value? Residual land value that can be created YES Return to the landowner NOT IF the return is less than threshold land value

Is CIL policy designed to push down land value? Not in the NPPF To ensure viability, the costs of any requirements likely to be applied to development, such as requirements for affordable housing, standards, infrastructure contributions or other requirements should, when taking account of the normal cost of development and mitigation, provide competitive returns to a willing land owner and willing developer to enable the development to be deliverable. NPPF (para 173)

Is CIL policy designed to push down land value? Not in the CIL Guidance Charging authorities should avoid setting a charge right up to the margin of economic viability across the vast majority of sites in their area. CIL Guidance Apr 2013 (para 30)

Is CIL policy designed to push down land value? Not in the Harman Guidance In setting out a Threshold Land Value, it is important to avoid assuming that land will come forward at the margins of viability. To guard against this, planning authorities should consider incorporating an appropriate ‘viability cushion’ in the testing in order to ensure that the sites upon which the Local Plan relies in the first five years will, on the balance of probability, come forward as required. Harman Guidance Jun 2012 (page 30)

Both RICS and Harman guidance are based on market evidence of land value Source: Savills

Balancing risk  Historic delivery  Historic Section106 achievement  Local Plan policy costs  Benchmark land value  Land supply characteristics and profile  Viability buffer

What is the delivery context? Is delivery meeting housing targets? Evidence of historic Section 106 payments is relevant if:  the site has been delivering recently  the context in which delivery was viable is properly understood  overall delivery is meeting housing targets

What is the land supply?  What land underpins the Local Plan?  Is there a 5 year land supply identified?  What types of site make up most of the Local Plan land supply?  What types of site?  In which local sub-markets? The viability conclusions should relate back to these answers

Applying the viability buffer ‘Generosity’ on all assumptions including contingency Apply a % reduction to a theoretical maximum CIL rate Set land value to include a viability cushion v v

Section 106 and CIL  Explicit policy on the balance between Section 106 and CIL  Draft regulation 123 list – what will be excluded from Section 106 funding?  Proposed changes to the Regulations – what will be excluded from Section 278 funding?  The proposed changes to the regulations will tighten the restriction on pooling of Section 106  Must be allowed for within the viability appraisals

Consistency is key

Policy choices have a cumulative impact on viability Source: Savills

Key drivers in the benchmark model Viability Values Affordable Housing CostsS.106

There is more capacity for CIL and Section 106 funding of infrastructure in higher value markets Source: Savills

There are trade-offs between the viability of CIL, Section 106 and affordable housing policy Source: Savills

There are trade-offs between the viability of CIL, Section 106 and affordable housing policy Source: Savills

In most markets, pricing potential for high volume sales is less then £250 per sq.ft. Source: Savills, using Hometrack sales value data

Most of the supply shortfall is in London and its connected markets Source: CLG, ONS

More allocation of land in higher value markets would allow greater funding of infrastructure from land value Source: Savills

What are the implications?  Some authorities have set unviable rates  Delivery of affordable housing should be closely monitored  Early adopters may wish to review rates  Local Plan policies should be checked for viability and soundness  Plan policies should be adjusted where necessary  Seek consistency to avoid unintended market variations across broader areas  Our report is intended as a guide...

We are not yet seeing a common approach that reflects national policy consistently Source: Savills

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