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Viability: What does it mean for the plan-led system?

18 September 2015

John Wacher

There is perhaps no more controversial aspect of planning right now than development viability, and the impact that this is having on the delivery of development plan policies, in particular affordable housing.

In the not too distant past, it was a rare occurrence to receive a viability assessment alongside a planning application, typically to deal with unusual site constraints. Since the introduction of the NPPF in England, viability has become a standard and increasingly dominant part of the planning process.

Under law, planning applications are determined in accordance with the development plan and material planning considerations. Plans are consulted on extensively, viability tested and subjected to public examination. Indeed, the statutory scheme and primacy of the development plan were key considerations in the recent High Court judgement on small sites affordable housing contributions and vacant building credit. Yet in our experience, viability assessments are being used as a ‘trump’ card to reduce or remove plan requirements, and this is undermining the plan-led system.

What’s the issue?

While the principle of viability testing makes sense - few planners would say that they would want good proposals to be restricted due to genuine constraints – and this can be used to determine how much affordable housing can be provided, concerns remain with how this is working in practice. Questions have for example been raised regarding the reliability of assessments on a series of cases and a raft of reports, such as the Parliamentary Select Committee review of the Operation of the NPPF, have called for changes in approach.

There is also a sense of exclusion of the public and a lack of wider scrutiny arising from the use of confidentiality arguments, which have been the subject of recent court cases. But there is growing interest amongst local groups, the press and wider public, as is evident from a recent event at the House of Commons organised by the Bureau of Investigative Journalism. With the Mayor of London, and even some consultants, now acknowledging that viability testing is ‘something of a dark art’ and sometimes appraisals ‘do not reflect reality’, these concerns may not be unfounded, which inevitably affects confidence in the system.

More specifically...

In areas like Islington with high rates of delivery and a buoyant market, it seems counter-intuitive that the majority of schemes are said to be unviable, even with a low level of proposed affordable housing. Part of the issue is that viability models are highly sensitive to the initial inputs. Costs that are cautiously high and values that are conservative have a big impact on the residual value, and the affordable housing that an appraisal indicates can be delivered.

There continue to be huge differences in the approach to valuing land, particularly since the introduction of guidance on site specific viability by RICS in 2012. The ability to lower affordable housing provision through viability arguments is creating uncertainty in the land market. When bidding for land and factoring in the uplift in value that may come from the grant of planning permission (‘hope value’), the developer who makes the most bullish assumptions around value growth, minimising affordable housing, and maximising density, will outbid others and acquire the site.

The current operation of viability in the planning system, together with other forms of deregulation, is disproportionately elevating landowner windfalls and developer profit at the expense of delivering planning requirements. This is undermining the plan-led system...

This purchase price (or an aspirational sum sought by a landowner), together with other land transactions which may not adequately reflect plan requirements, the circumstances of the application site and incorporate assumptions of value growth (whereas planning appraisals are based on current day values), are then used as market evidence to support an inflated land value. When applied as a fixed cost in the appraisal (rather than land value being the residual) it becomes inevitable that plan policies are found to be unviable.

The justification for this is that affordable housing requirements are subject to site viability testing and so whatever land value is assumed in a viability assessment (even if based on little or no affordable housing) must be right. However, this transfers developers' risk onto the planning system and the community (but without a corresponding reduction in profit), introduces circularity, and pre-determines the outcome of the assessment. As expressed at a recent appeal, this drains plan policies of their meaning and purpose. A recent RICS research paper identifies this as a misapplication of the 2012 RICS guidance and warns that under this approach “landowners and developers can manipulate the situation to their financial benefit”.

Implications

The current operation of viability in the planning system, together with other forms of deregulation, is disproportionately elevating landowner windfalls and developer profit at the expense of delivering planning requirements. This is undermining the plan-led system, and the ability of local authorities to deliver sustainable development and affordable housing in the midst of a housing crisis.

Even for authorities with the political will and resources, the scale of current challenges makes it increasingly hard to secure affordable housing, not to mention further anticipated reforms.

This is a missed opportunity with a real human cost as demonstrated by the growing concerns of organisations such as the Joseph Rowntree Foundation and Crisis, whilst the CBI and KPMG cite the impact that a lack of affordable housing is having on the competitiveness of the economy.

What next?

Undoubtedly there is more that local authorities can do. Guidance setting out information requirements and an appropriate methodology provides clarity to applicants and provides the right framework in which viability appraisals can be robustly assessed. A number of authorities are taking steps to introduce greater transparency so that members of the public are more involved. London Boroughs have formed a viability group so that they can share expertise, take a consistent approach and build up their capacity.

But local authorities cannot do this on their own.

Those who think that planning can still be a force for good by addressing modern day issues, producing good quality places and creating long-term value, need to re-assert the importance of the development plan as the main tool for achieving this.

Changes are needed to national, regional and industry guidance so that viability supports rather than weakens delivery of the plan. This must establish an approach to land value based on existing use values with a sensible premium to encourage release of the site but where planning requirements are recognised as a pre-requisite to securing the consent from which any additional value is derived.

And finally...

At a time when many built environment professionals feel that their values are being compromised, we need to establish clear expectations and measures, as set out in the Edge Commission Report on the Future of Professionalism, for putting the public interest back into practice at an individual, corporate and institutional level.

John Wacher is S106 and Development Viability Manager at the London Borough of Islington and co-ordinates the London Borough Viability Group.

Guest posts do not necessarily reflect the views of the RTPI.