savills.com Viability Testing of CIL and Local Plans Effective Practice Melys Pritchett BSc (Hons) MRICS Associate Director, Development Research & Consultancy 23 September2013

The emerging picture Contents Aligning objectives Balancing risk Achieving consistency

The national position Source: Savills, 22 September Committed to CIL 103 Producing their evidence base 69 Preliminary Draft Charging Schedule stage 28 Draft Charging Schedule stage 25 Examination stage 25 Charging Schedule Adopted or Implemented

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)

Both RICS and Harman guidance are based on market evidence of land value Market Value assuming no planning obligations Threshold at which land can be assumed to come forward Current Use Value (Market Value in existing use) Establishing a site value benchmark for viability where plan policies are being tested Reduce by adjusting in light of policies But not below a ‘boundary’ reflecting competitive returns Add % premium based on evidence that represents competitive returns in local market conditions Common Ground Assumptions made in setting and/or adjusting the boundary or premium should be evidence-based and draw on local expertise RICS approachLHDG approach

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)

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

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

Affordable housing and CIL compete for the same pot CIL Local Plan Viability Affordable housing Other Section 106 Standards

The impact of the land value benchmark EUV+ land value benchmark Market land value benchmark Higher threat to delivery Lower threat to delivery

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

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

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