1. Testing Viability Jayne Lomas 16 th October 2012

2. Today’s presentation….  Context - Planning and viability in 2012  HCA – Our business  Area wide testing  Site specific testing  HCA support and advice.

3. NPPF launch – Plans should be deliverable X X XHarman - Advice on viability testing of Local Plans. Further planning reform

4. The Balancing Act  Local expectation  Economic reality  Political change  Local plan viability  Site specific  Larger phased sites  DELIVERY

5. HCA : Our business Housing Delivery Increasing housing supply Places that work Improving quality and standards Effective use of public sector land Meeting housing needs Delivering our programmes

6. HCA: As an investor  Affordable Housing Programme 2011- 15  £4.5bn (£2.3bn existing commitments)  Meeting locally identified needs  FirstBuy support for c.10,000 FTBs access affordable home ownership “Helping deliver the Government’s ambition to build up to 170,000 new high quality affordable homes by 2015”

7. HCA : As a land owner/agent HCA Land  Existing P&R commitments  Accelerated disposal of land Other government land  Technical support to government departments Economic Assets Programme  Over 300 sites transferred – value of £300m  Nationally important sites – Enterprise Zones  Local stewardship arrangements

8. HCA : Why viability test?  To make sure we can deliver our land disposal plan  To ensure we get the best value for our land  To see that our investment goes where it is needed most  To make sure that our investment works as hard as it can – maximise recovery  To select delivery partners (DPP)

9. Think like a developer …..  What is the total amount I could be paid for this development when completed? Gross development value.  What will it cost me to construct the development including site set up? Overall build cost.  Any additional construction costs? Infrastructure/site abnormals?  What additional obligations will I have to meet? S106/CIL/Affordable housing  How will I pay for this development work? Finance costs and cashflow impact  What costs will I have to pay to sell the units? Marketing and legal costs  How can I satisfy my shareholders? Developer’s return or overheads and profit.  What can I afford to pay for the land? Residual l and value

10. The secret of viability testing  Assumptions, assumptions, assumptions  Comparators  Benchmarks  Do ( as much as you can) yourself !

11.  The overall price at which the developer calculates he can sell on the land and new buildings.  Ultimately the ‘fixed cake’ from which everything has to be paid.  For sales values look at local market evidence. Hometrack.  Sales values used should be forecast to the proposed sales period – could be several years  Look at sales rates and the impact this has on cashflow.. Income assumptions

12. Expenditure assumptions 1  The total cost of constructing the units  Building Cost Information Service (BCIS) from RICS –Definition ‘substructure & superstructure but not infrastructure’ ‘back to the pavement but no further’ –Limitations sample size, Build scale  Volume house building –Cost efficiencies of a standard product ? –Supply chain benefits  Quality standards - Code for Sustainable Homes (CSH) & Zero Carbon, Life time homes  Contingency???? Unit Build costs

13. Expenditure assumptions 2  Prelims and site set up – depends on length of contract  External works  Infrastructure  Abnormals (for the type of scheme….)  Design fees  Finance fees  Marketing costs and incentives  Overheads and profit

14. Expenditure assumptions 3  S106  CIL  Affordable Housing – tenure mix, numbers Regulatory burden?

15. HCA : Our Viability tools  Designed to be neutral, open and transparent  Available free from our website  No ongoing license fees  Guidance online  Specific support available via email helpdesk www.homesandcommunities.co.uk/ourwork/viability-planning-tools

16. HCA : Area wide viability model  A transparent, independent tool  The AWVM is simple and can be used for consultation events  Can be used for plan making purposes over many years  Can be used throughout changes in teams/consultants  Land value is calculated as one of the outputs and is not an input derived by the land owner or others.  It will ‘goalseek’ to find the viable level of Affordable Housing given the assumptions made

17. HCA : Development appraisal tool  Site specific viability tool (DAT)  Residual value model  Based on assumptions  Advice on sourcing robust input data  Allows benchmarking between bids and sites.  Derivations for deferred receipt – Build Now Pay later

18. HCA : ATLAS  Specialist support on larger sites (ATLAS)  Usually at the request of the LPA  Housing led development sites +500 units  Mixed use complex schemes  Any stage of delivery  Linked to a site or delivery proposal  Non – project support