Peter Brett Associates LLP Community Infrastructure Levy And Whole Plan Viability 4 July 2013 Steve Woolley

Peter Brett Associates LLP CIL & WPV Context Infrastructure delivery implications CIL Making it add up – a deliverable plan Consultation & Examination

Peter Brett Associates LLP CONTEXT

Peter Brett Associates LLP Framework Local Plan Requirements NPPF CIL Legislation CIL Guidance ‘Harman’ Guidance

Peter Brett Associates LLP Local Plans - NPPF “…should be aspirational but realistic.” (NPPF Para. 154) “….should be deliverable.” (NPPF Paras. 173 & 182) Key elements of deliverability: Availability of sites (NPPF Para. 47) Policy burdens and viability (NPPF Para. 173) Infrastructure delivery (NPPF Para.177)

Peter Brett Associates LLP Local Plans – Harman on viability Guidance on assessing plan viability Highlights the balance members need to strike

Peter Brett Associates LLP Local Plans – Infrastructure delivery “It is... important to ensure that there is a reasonable prospect that planned infrastructure is deliverable in a timely fashion.” (NPPF Para. 177)

Peter Brett Associates LLP Local Plans – Infrastructure delivery Key factors of infrastructure deliverability: Cost and affordability Delivery body agreement Availability of land Timing – for all of the above Increased focus on this Plan for real-world delivery

Peter Brett Associates LLP Whole Plan Viability in a nutshell Using evidence to inform…. Striking the balance between Policy / AH / Infrastructure / Viability Ensuring the plan is…. Sustainable Deliverable ……In the real world.

Peter Brett Associates LLP Not a one-off task “The assessment process should be iterative. Draft policies can be tested based on the assumptions agreed with local partners, and in turn those assumptions may need to be revised if the assessment suggests too much development is unviable. This dynamic process is in contrast to the consideration of viability during development management, when policy is already set. “ (Harman Page 11)

Peter Brett Associates LLP COMMUNITY INFRASTRUCTURE LEVY

Peter Brett Associates LLP Purpose of CIL - Pro-growth Contributions from development Respect viability In order to Bring forward infrastructure (etc.) Deliver the Local Plan (Planning Act 2008 S205(2))

Peter Brett Associates LLP Why CIL? – CIL Vs S106 CIL Deals with cumulative impact Flexible strategic fund Most development pays Fixed rate(s), Predictable Major work to establish Easy(ish) once established ‘Fairer, faster and more certain and transparent’ (DCLG) S106 No tarriffs after 2014 (5?) Requires development link Many had no S106 Subject to negotiation ‘Known Quantity’ Case by case negotiation NB: S106 remains. R123 lets you ‘draw the CIL/S106 line’ locally.

Peter Brett Associates LLP The CIL framework The Planning Act 2008 (as amended by Localism Act 2011) Part 11 (sections ) Purposes of CIL – broad framework of CIL – plus some detail on charging schedule examination, charities, charging authorities... The CIL Regulations 2010 (as amended: 2011, 2012, 2013) Scope of CIL – liable parties – collection – enforcement – definitions – monitoring – procedures – exemptions and exceptions – alterations to section 106… Guidance and information CIL Statutory Guidance and CIL overview, CIL Relief, and CIL Collection documents

Peter Brett Associates LLP Key Features of CIL Optional for LPA to set A Tax - Mandatory once set Set with regard to evidence Proceeds Pooled – no link to contributor Spend on infrastructure to support development S106 ‘scaled back’

Peter Brett Associates LLP Recent changes December 2012 CIL guidance Focus on strategic sites “Show and explain” how CIL will deliver plan Clarity at Examination on s123 list and CIL v s106 More emphasis on engagement CIL (Amendment) Regs 2013 LPAs must pass 15-25% of CIL revenue to local areas No infrastructure spending tie for that %

Peter Brett Associates LLP SPENDING CIL

Peter Brett Associates LLP Spending CIL Authorities can only spend on infrastructure to support the development of their areas Includes provision, improvement, replacement operation or maintenance “Infrastructure” includes (list in Act not exhaustive): flood defence open space recreation and sport roads and transport facilities education and health facilities [not affordable housing – removed by CIL regulations] (Planning Act 2008 S216)

Peter Brett Associates LLP Flexible strategic fund No connection to contributor Proportion to neighbourhoods No infrastructure spending tie S106 ‘scaled back’ – But not for AH Site focus & no pooling CIL/106 mix must be transparent Consult on CIL spending list Spending CIL

Peter Brett Associates LLP Planning Obligations and CIL CIL Regs. change use of S106 (but not S278): Site Focus. From April 2010 law says obligations re. buildings must be: Necessary to make acceptable in planning terms Directly related Fair and reasonably related in scale and kind (Reg. 122) No more s106 infrastructure tariffs, from April 2014 (15?). Max 5 S106s can be pooled Does not apply to affordable housing (Reg. 123(3) No double charging via s106 for things to be funded from CIL, from the point CIL introduced Via a list of CIL spending intentions - aka. “Reg. 123 list” (Reg. 123(2))

Peter Brett Associates LLP Regulation 123 List Possible approaches to Regulation 123(2): No list – this would mean you intend to fund all infrastructure via CIL - you could not use s106 for any infrastructure Broad list – eg. state you would use CIL to fund health infrastructure - you then could not use s106 for any health infrastructure. BUT - you could use S106 to fund other infrastructure types not on the list Specific/Mixed list – you state you would use to CIL to fund primary schools, but not one specific school – you then could use S106 to fund that primary school. BUT could not use it to fund other primary schools. You could use S106 to fund other infrastructure not on the list.

Peter Brett Associates LLP Regulation 123 list – Key points Transparency is vital – be clear Mixed approaches must be justified At examination, must set out: What will be on the list How S106 will be used How any S106 policies will be varied Good practice to include in consultation Must consult on later changes to the list

Peter Brett Associates LLP Neighbourhood Funding In neighbourhoods where development occurs: If parish/local council, CA Passes over: If no N/hood plan - 15% to parish (£100/dwelling/yr cap) If N/hood plan – 25% to parish (no cap) Local council to engage with CA over infra. priorities If no local council, CA consults neighbourhood and spends: If no N/hood plan – 15% (£100/dwelling/yr cap) If N/hood plan – 25% (no cap) CA expected to set out its neighbourhoods and consultation methods

Peter Brett Associates LLP Neighbourhood Funding Parish or CA may spend the 15/25% on: Infrastructure, or “anything else….concerned with addressing the demands that development places on an area” Intention is to incentivise acceptance of development

Peter Brett Associates LLP LIABILITY

Peter Brett Associates LLP What is liable? Development of buildings Where people normally go Over 100m 2 – but any size new dwelling For which permission granted post CIL (includes PD rights) Net new-build GIA – charged £/m 2 Refurbishment & change of use not liable (NB dwellings) Demolished GIA netted off, but Only if in use for 6 mths in 12 before permission What doesn’t pay Non Buildings – not liable Permission pre-CIL (inc. outline) – not liable Below 100m 2 (except new dwelling) – not liable Charities (exempt) & Social housing (100% relief)

Peter Brett Associates LLP Exemptions & Reliefs Mandatory exemption for development for charitable purposes (+ discretionary charitable investment relief) Mandatory 100% relief for social housing

Peter Brett Associates LLP Who pays? Liability runs with the land (land charge) Anyone can accept liability Incentives to do so Defaults to landowner(s)

Peter Brett Associates LLP Paying CIL Liability notified with planning permission Fixed & non-negotiable Virtually no scope for individual exceptions Due 60 days after commencement, but LA can set instalment policy Can agree to transfer land (but not construct infrastructure) Penalties for non payment Surcharges & interest Stop notices Distress / sale of goods Charging order / prison

Peter Brett Associates LLP Exceptions and Instalments Optional Policies the CA may choose to set Can be done at any time Are not part of the charging schedule Exceptional Circumstances Policy For rare exceptions only - severely limited by Regulations & State Aid Law Instalments Policy Must apply to all Vary payment deadlines by (only) Time from commencement Total liability Amount and number of instalments

Peter Brett Associates LLP SETTING CIL

Peter Brett Associates LLP CIL - setting Optional for LPA A Tax – must be paid Based on evidence: Development in Local Plan Strategic Sites Affordable Housing Need for infrastructure Viability of development

Peter Brett Associates LLP Setting a rate CIL is designed to have a positive economic effect – it must support the development of the authority’s area (not threaten Local Plan delivery) (CIL Guidance Para 8) A CA must look at the potential effects of charges “taken as a whole” on the viability of development “across its area” (CIL Reg 14(1)(b) ) The law effectively recognises that the rate set may put some development at risk – this is a judgement for the CA

Peter Brett Associates LLP Pro-Growth Balance Must “aim to strike what appears to the LPA to be an appropriate balance between”:  Meeting all or part of the infrastructure funding gap; and  The potential impact of CIL on the economic viability of development across its area. Must explain this judgement at examination

Peter Brett Associates LLP Differential rates 1 Differential rates are a useful tool, but be careful… Only lawful criteria are “intended use” and/or “zone” Plus Differential rates must (only) be based on economic viability evidence (CIL Reg. 13) NB – “use” not tied to Use Classes Order

Peter Brett Associates LLP Differential rates 2 Differential rates can be used to: Avoid threat to viability of particular uses vital for Local Plan delivery Ensure development envisaged by the Local Plan can remain viable across the area, where viability differs by zone Maintain viability of strategic sites with particular costs eg. S106 infrastructure needs (eg primary school). But Avoid complex rate structures. More differential rates mean more evidence is needed.

Peter Brett Associates LLP SETTING CIL: EVIDENCE

Peter Brett Associates LLP Charge setting evidence The Charging Authority “must use appropriate available evidence to inform…preparation of a charging schedule” (Planning Act 2008 S 211(7A) - with my underlining)

Peter Brett Associates LLP Charge setting evidence: 1. Up to date Plan CIL Guidance: “Gov’t expects ……‘appropriate evidence’ includes an up-to-date Plan for the area….” NPPF: “where practical, CIL should be worked up alongside the Local Plan”

Peter Brett Associates LLP Charge setting evidence: 2. Infrastructure Base evidence on IDP supporting the Plan Supplement if necessary Demonstrate an infrastructure funding gap Need to fund infrastructure vs. existing funding streams Consider CIL / S106 balance Clear S106 policies in support CIL spending priorities (R123 list)

Peter Brett Associates LLP Charge setting evidence: 3. Viability Area-based approach not threaten Plan as a whole Not an exhaustive evidence base Appropriate range of site types Particular focus on strategic sites Evidence “informs” the charge No need to exactly mirror evidence - pragmatism Take policy costs into account e.g. affordable housing CIL must leave room to deliver them

Peter Brett Associates LLP Exceptions and instalments Ignore these when testing viability: Exceptional Circumstances Policy Instalments Policy Charging schedule must stand on its own Proposed use of these policies is irrelevant to the examination’s consideration of viability

Peter Brett Associates LLP How does it look?

Peter Brett Associates LLP

Consultation Engage developers and other LAs (neighbours, upper & lower tier) early - and throughout the process: On viability On spending proposals and CIL / s106 balance CIL Guidance emphasises the need for this Preliminary Draft Charging Schedule – no legal minimum. Guidance suggests 6 weeks. Minimum statutory consultees listed. Draft Charging Schedule – minimum 4 week consultation period. Guidance suggests 6 weeks (CIL Regs 15 & 16)

Peter Brett Associates LLP Examination Secretary of State has no role LA appoints “independent” person with “appropriate qualifications and experience” to consider representations and establish: The law has been complied with Charging schedule supported by appropriate available evidence Rates consitent with and informed by evidence of viability across the area Evidence shows rates would not threated delivery of plan as a whole

Peter Brett Associates LLP Points from CIL examinations Much discussion of infrastructure, but examiners not challenging IDPs Established that rates “informed” by evidence Representations focus on viability assumptions Examiners looking for a reasonable viability ‘buffer’ Potential threat to AH policy delivery has become a key focus NB: new requirement to “show & explain” the balance

Peter Brett Associates LLP Direction of travel? 2013 consultation 15 areas for possible change - including: Extension to pooled s106 deadline ? Require evidence on “appropriate balance”? Differential rates by size? Allow payment ‘in kind’? AH relief for Discounted Market Sale homes? Easier to net off existing space? Exemptions policies easier to apply? Exempting self-build?

Peter Brett Associates LLP MAKING IT ADD UP: VIABILITY & DELIVERABILITY

Peter Brett Associates LLP NPPF on WPV “Plans should be deliverable” “….the sites and the scale of development identified in the plan should not be subject to such a scale of obligations and policy burdens that their ability to be developed viably is threatened.” “…important to ensure that there is a reasonable prospect that planned infrastructure is deliverable in a timely fashion” NPPF, Paras. 173 & 177.

Peter Brett Associates LLP CIL Guidance Deliver the Plan – Show how: “…charging authorities should show and explain how their proposed levy rate (or rates) will contribute towards the implementation of their relevant Plan and support the development of their area. As set out in the NPPF in England, the ability to develop viably the sites and the scale of development identified in the Local Plan should not be threatened.” April 2013 CIL Guidance, Para 8.

Peter Brett Associates LLP Harman ‘a Local Plan can be said to be deliverable if sufficient sites are viable to deliver the plan’s housing requirements over the plan period.’ Sites are viable ‘if, after taking account of all costs, including central and local government policy and regulatory costs and the cost and availability of development finance, the scheme provides a competitive return to the developer to ensure that development takes place and generates a land value sufficient to persuade the land owner to sell the land for the development proposed.’

Peter Brett Associates LLP Viability 1 - Many impacts

Peter Brett Associates LLP Viability 2 – Key CIL / WPV variables

Peter Brett Associates LLP Viability 3 - £200k Semi

Peter Brett Associates LLP Viability 4 – Residual Valuation Value of Completed Development Development Costs Residual Land Value (Site with Planning Permission) Development Costs include: Construction Costs – Inc. national building standards etc. [Site abnormals for specific sites (eg. Decontamination, burying pylons, servicing remote greenfield)] Finance costs Developer Profit Local Policy Costs – initially without CIL & affordable housing

Peter Brett Associates LLP Viability 5 - Major policy costs (excl AH & CIL) Carbon Policy or Design Policy SANGS-type environmental charge Building regulation changes Public Open Space Site Density S106 (other than AH)

Peter Brett Associates LLP Viability 6 – Viable? Residual Land Value Benchmark Land Value Theoretical Max £ for CIL & AH Benchmark land value (aka Threshold): price a landowner in the area would sell for For area-wide appraisals takes account of average ‘abnormal’ site preparation costs If the result is negative, development is not viable

Peter Brett Associates LLP Viability 7 - Assumptions Values used are based on assumptions Some Plan policy related Some market related These are critical to the outcome Test the latter via Local engagement Failure to do so could lead to: Hostile representations Failure at examination

Peter Brett Associates LLP How much detail? Harman says site typologies approach is sensible (P.11) ‘does not require a detailed viability appraisal of every site anticipated to come forward over the plan period… suggests a more proportionate and practical approach in which local authorities create and test a range of appropriate site typologies reflecting the mix of sites upon which the plan relies’. CIL Guidance April 2013 goes a bit further on site sampling (Para. 27) ‘charging authority should sample directly an appropriate range of types of sites …focus should be in particular on strategic sites on which the relevant Plan relies and those sites (such as brownfield sites) where the impact of the levy on economic viability is likely to be most significant.’ Harman reminds us this is high level (P.15) ‘The role of the test is not to give a precise answer as to the viability of every development likely to take place during the plan period. No assessment could realistically provide this level of detail…rather, it is to provide high level assurance that the policies within the plan are set in a way that is compatible with the likely economic viability of development needed to deliver the plan.’

Peter Brett Associates LLP So, what development to test? Plan priorities: Housing is the major element Specific strategic sites ‘Typical’ sites Plus other plan priorities Offices and industrial ? Retail? Hotels? Student accommodation?

Peter Brett Associates LLP NPPF on Housing Deliverability viability and time For housing - Plan must show Deliverable sites over Yrs 0-5 (viable, suitable location, available - now) Developable sites over Yrs onwards if possible (suitable location, ‘reasonable prospect for viable development at the point envisaged’) NPPF Para. 47 Time of development is critical

Peter Brett Associates LLP So, to test no threat to delivery Examine the emerging plan Test GEOGRAPHY + POLICY + TIME Geography: dev’t location and viability zones Policy: cost effects on viability (inc. CIL, AH) Time: Check Yr. 0-5 sites ‘deliverable’ (viable, available, suitable location), now Check Yr sites ‘developable’ (reasonable prospect of viable development) Then tweak policy costs up/down Iterative process

Peter Brett Associates LLP

Price Contours

Peter Brett Associates LLP Location of development

Peter Brett Associates LLP Check the hypothesis: development appraisals Development appraisals are necessary Price heat map only a proxy for viability testing Formal viability testing combines Costs of development and Up-to-date local sales values from agents and developers, against Benchmark land values (what landowner will sell for) also from local agents, developers Pulling together these factors gives an indication of the CIL/AH available

Peter Brett Associates LLP The important bits Notional scheme tested CIL theoretically payable Residual Value Policy OffBenchmarkCost of S.106Cost of AffordablePotential CIL overage Value areas No of dwellings DensityPer Ha£ per unitPer £psmPer Ha£ per unitPer £psmPer Haper unitPer £psmPer Ha£ psmPer Ha£ per sq.m Lower Value Houses –130£689,769£22,992£270£500,000£16,667£196£15,000£500£6£275,400£108-£85,631-£39 Houses –530£690,566£23,019£271£500,000£16,667£196£15,000£500£6£275,400£108-£84,834-£39 Houses –1530£617,033£20,568£242£400,000£13,333£157£15,000£500£6£275,400£108-£58,367-£29 Houses –5030£537,152£17,905£211£400,000£13,333£157£15,000£500£6£275,400£108-£138,248-£60 Houses –10030£322,552£10,752£126£400,000£13,333£157£15,000£500£6£275,400£108-£352,848-£144 Flats £520,865-£8,013-£114£400,000£6,154£87£32,500£500£7£394,875£86-£1,315,740-£294 Higher Value Houses –130£1,064,821£35,494£418£600,000£20,000£235£15,000£500£6£309,825£122£154,996£55 Houses –530£1,062,508£35,417£417£600,000£20,000£235£15,000£500£6£309,825£122£152,683£54 Houses –1530£1,006,543£33,551£395£500,000£16,667£196£15,000£500£6£309,825£122£196,718£71 Houses –5030£878,206£29,274£344£500,000£16,667£196£15,000£500£6£309,825£122£68,381£21 Houses –10030£618,667£20,622£243£500,000£16,667£196£15,000£500£6£309,825£122-£191,158-£81 Flats -2065£42,057£647£9£500,000£7,692£109£32,500£500£7£447,525£98-£905,468-£204

Peter Brett Associates LLP Before we start Avoid setting CIL and other policy costs at the maximum theoretical charge. Because we can’t do it so precisely We don’t know where the maximum is, because Markets bump up and down All sites are different You can’t entirely build in risk perceptions, or market sentiment So we leave a buffer

Peter Brett Associates LLP So how big is ‘the buffer’? Knock off a set percentage from the theoretical maximum? Too mechanical. Use professional judgement We take into account The strength of the market in each zone (The better the market the higher we can push) Historical performance This will vary by sector and/or by use

Peter Brett Associates LLP ‘AH Policy off’ – possible overage for CIL with no affordable housing

Peter Brett Associates LLP

AH Policy on AH set at just 5% in this case

Peter Brett Associates LLP Other things being equal, potential developer contribution is fixed by local market conditions

Peter Brett Associates LLP The “Other Balance” If revising Plan & setting CIL this leads to

Peter Brett Associates LLP Collect more CIL for infrastructure, and the amount available for affordable housing falls…

Peter Brett Associates LLP …alternatively, requiring more affordable housing through S106 means less CIL for infrastructure

Peter Brett Associates LLP For a new plan - ‘Pick and Mix?’ geographically variable AH policy with geographically variable CIL. Perhaps: In lower area = £0 CIL & 0% AH In mid area = £0 CIL & X% AH In higher area = £Y CIL & X% AH

Peter Brett Associates LLP But if you already have a Plan…. Policies are set May be no appetite to revisit AH elements Plan is King Must aim to deliver AH target And explain how One side of the “other balance” is fixed

Peter Brett Associates LLP

Time factor - Which sites are sampled in more detail? Remember CIL guidance wants ‘strategic’ sites tested; AND NPPF wants to have more detail on Y0-5 sites To satisfy both: we need to look at strategic (bigger), near-term sites And review Y6 onward sites

Peter Brett Associates LLP Need something like this - NPPF requires one (para. 47)

Peter Brett Associates LLP So you broadly need to know… For the Y0-5 sites… Are they deliverable (viable + suitable location + available) now? For the Y6-10, sites… Are they developable (reasonable prospect of viable development) at point envisaged? Viability sampling needs to confirm this Sensitivity testing on recovering values to look at long term potential you don’t want too short a sell-by date

Peter Brett Associates LLP Viability testing on other uses Focus on Plan priorities: Offices and industrial ? Retail? Hotels? Student accommodation? Residential care homes? Consider ‘standard charging’ Consider what is unlikely to pay: Exemptions, redevelopment, change of use

Peter Brett Associates LLP Home and dry?

Peter Brett Associates LLP GET THE STORY STRAIGHT

Peter Brett Associates LLP Prepare for Examination Viability evidence is only part of what’s needed CA needs a clear story for examiner 1.Where growth is going 2.When it’s going to get built (and that it will) 3.What infrastructure is needed & when, 4.How you’re going to: pay for necessary infrastructure eg via CIL & S106 Deliver affordable housing targets over Plan life Inspector understands you don’t have a crystal ball on the economy you don’t know where all infrastructure funding is coming from But increased emphasis on economic reality.

Peter Brett Associates LLP QUESTIONS?

Peter Brett Associates LLP RECAP

Peter Brett Associates LLP Handout Sets out: Aim Key objectives Task – in stages But don’t forget that WPV is an iterative process

Peter Brett Associates LLP EXERCISE

Peter Brett Associates LLP Workshop Questions 1.Your client is a developer. They have valuers examining the assumptions, but want at least two other evidence issues to include in their representation. Can you help them? 2.Takeaway and betting shop operators are concerned about the effect of the charge. Could they make a representation? On what grounds? 3.Imagine SPAR have made a representation: small convenience stores under 400m 2 will be hit by a £150 CIL they can ill afford. How might the LA respond? 4.Other Representations: 1.Cite cashflow problems for small builders and call for phased payments for small developments 2.Say developments of under 10 homes don’t provide on site AH and so should pay higher CIL – the ‘flat rates’ in each zone are unfair How might the LA respond?