1. Thriving communities, affordable homes

2. HCA Area Wide Viability Model PAS Viability Skills for Planners – Workshop B January 2011 Graeme Geddes – Planning Manager – Programmes Directorate

3. Thriving communities, affordable homes Area Wide Viability Model  What is it?  What’s it for?  What it does (and doesn’t do)  Key concepts used  Assumptions  How it works

4. Thriving communities, affordable homes The value capture pie Community Infrastructure Levy Affordable Housing s106 Other s106 How large each slice?

5. Thriving communities, affordable homes What is it?  A neutral tool  An “open source” enabling resource  www.homesandcommunities.co.uk/area-wide-viability-model www.homesandcommunities.co.uk/area-wide-viability-model  No default assumptions  Strategic viability testing  User Manual  HCA Transparent Viability Assumptions

6. Thriving communities, affordable homes Developers Require sufficient return for cost of investment and for taking on development risk Land owners Sufficient value to meet expectations and release land for development Planning Authorities Sufficient planning obligations to make development acceptable + CIL Viable Developments

7. Thriving communities, affordable homes What it’s for  Mixed tenure residential development  Interface with planning policy  Testing –Affordable Housing Delivery –Community Infrastructure Levy  Deliverability of –SHLAA sites –HCA Local Investment Plans

8. Thriving communities, affordable homes What it models 1.Deliverability of plans/policy 2.Community Infrastructure Levy 3.Design Standards 4.Affordable homes % (without public investment)

9. Thriving communities, affordable homes Area wide & site specific Planning policy Land transactions Planning/ S106 negotiations/ land sale to RPs Investment Decisions Delivery Area wide viability model Site specific viability tool (EAT / 3 Dragons) Local Investment PlansIndividual Project Delivery Plan MakingDevelopment Management Market BaselineAdditionality

10. Thriving communities, affordable homes The viability equation Infrastructure / Enabling £3m

11. Thriving communities, affordable homes Infrastructure / Enabling Construction £3m £38m The viability equation

12. Thriving communities, affordable homes Infrastructure / Enabling Construction Professional Fees £3m £4m £38m The viability equation

13. Thriving communities, affordable homes Infrastructure / Enabling Construction Professional Fees Sales & Marketing Costs £3m £1m £4m £38m The viability equation

14. Thriving communities, affordable homes Infrastructure / Enabling Construction Professional Fees Sales & Marketing Costs £3m £1m £4m £38m Finance Costs £5m The viability equation

15. Thriving communities, affordable homes Infrastructure / Enabling Construction Professional Fees Sales & Marketing Costs £3m £1m £4m £38m Contingencies & Other Costs Finance Costs £2m £5m The viability equation

16. Thriving communities, affordable homes Infrastructure / Enabling Construction Professional Fees Sales & Marketing Costs £3m £1m £4m £38m Developer’s Profit Contingencies & Other Costs Finance Costs £2m £11m £5m The viability equation

17. Thriving communities, affordable homes Infrastructure / Enabling Construction Professional Fees Sales & Marketing Costs £3m £1m £4m £38m Developer’s Profit Contingencies & Other Costs Finance Costs s.106 £2m £11m £3m £5m The viability equation

18. Thriving communities, affordable homes Infrastructure / Enabling Construction Professional Fees Sales & Marketing Costs £3m £1m £4m £38m Costs £67m Developer’s Profit Contingencies & Other Costs Finance Costs s.106 £2m £11m £3m £5m The viability equation

19. Thriving communities, affordable homes Infrastructure / Enabling Construction Professional Fees Sales & Marketing Costs £3m £1m £4m £38m £75m Revenues (GDV) Costs £67m Developer’s Profit Contingencies & Other Costs Finance Costs s.106 £2m £11m £3m £5m The viability equation

20. Thriving communities, affordable homes Infrastructure / Enabling Construction Professional Fees Sales & Marketing Costs £3m £1m £4m £38m £75m Revenues (GDV) Developer’s Profit Contingencies & Other Costs Finance Costs s.106 £2m £11m £3m £5m Land Value £8m Residual = land The viability equation Costs £67m

21. Thriving communities, affordable homes Infrastructure / Enabling Construction Professional Fees Sales & Marketing Costs £3m £1m £4m £38m £75m Revenues (GDV) Developer’s Profit Contingencies & Other Costs Finance Costs s.106 £2m £11m £3m £5m Landowner requirement £12m Non-viable development Costs £67m

22. Thriving communities, affordable homes Viability - a constraint on delivery & s106 capacity Pressure on viability of land supply Partially Functioning Markets Costs of “Regulation” Planning Obligations Infrastructure via S106/ CIL Affordable Housing

23. Thriving communities, affordable homes Planning obligations - who pays?

24. Thriving communities, affordable homes Key Concepts 1.Land Value Capture 2.Affordable housing price (without grant) 3.Threshold Land Value 4.Development Typologies

25. Thriving communities, affordable homes Guidance on Viability?

26. Thriving communities, affordable homes Threshold Land Value  Value at which land will come forward in market Satisfying landowner expectations Taking account of planning policy But how much greater than existing / alternative use?  Lack of professional consensus & guidance  RICS practice note Financial Viability in Planning  HCA Transparent viability assumptions

27. Thriving communities, affordable homes Area-wide viability model  Works across a district  Groups sites by typologies  For a given set of planning policies is each typology viable or not?  Evaluation of trade-offs between planning obligations

28. Thriving communities, affordable homes The model doesn’t  Calculate Threshold Land Values  Provide advice on assumptions  Contain default assumptions  Prevent use of wrong assumptions

29. Thriving communities, affordable homes The value capture pie Community Infrastructure Levy Affordable Housing s106 Other s106 How large each slice? Viable market baseline to which HCA funding adds value.

30. Thriving communities, affordable homes Capacity for value capture Completed Development Value Capacity for CIL / S106 less Total construction costs, interest, fees, etc. Capacity for Affordable Housing Threshold Land Value less equals less Developer profit equals Residual Land Value (above Threshold Value)

31. Thriving communities, affordable homes Funding gap Target £000s for CIL / S106 Target % affordable housing Assumed threshold land value where less than Residual land value for typology gives Analysing differences between development typologies Funding gap £000s difference equals to support viable residual land value

32. Thriving communities, affordable homes Affordable homes – no grant Target £000s for CIL / S106 Capacity for affordable homes Assumed threshold land value for RLV which equals Threshold Residual land value model “goal seeks” market baseline Understanding capacity of different development typologies as % of private for given affordable rent / intermediate split

33. Thriving communities, affordable homes Core principle of model For a development site typology  Is the residual land value (what the developer can pay for the land)  sufficient for the landowner to release the site? (the threshold land value)

34. Thriving communities, affordable homes Area Wide Viability Model  Overview of model & navigation  Concept of development typologies  Importance of assumptions  Sensitivity to changes in key assumptions  Sales value mapping

35. Thriving communities, affordable homes Land Registry 2009 transactions Chelmsford heat map