Delivering viable development

By Keith Thomas FRTPI, FRICS, RTPI CPD Trainer, Director of Per-Consulting

After a couple of years of serious market turmoil, with accelerated inflation and rising interest rates, we may be entering a new period of stability and renewed market confidence…. Although I am scared to shout it out too loudly in case the bubble bursts once again.

There is no doubt the financial turbulence of recent years hit the development market with both barrels – eye-watering increase in build costs and the cost of development finance together with a constrained residential mortgage market and a commercial sector recovering from reduced demand since Covid-19.  Not only did it cost more to build but there was very real uncertainty on sales value and the realistic pace of sales. For a developer of course any delay in recovering build costs simply adds to the cost of finance where time really is money especially when finance rates were also climbing.  The obvious result – slowdown in construction starts and a very clear reduction in planning applications which will extend the delay period even further.

Whilst the Bank of England Monetary Committee kept Base Rates at 3.75% in February this was off the back of six successive cuts since the peak of 5.25% in August 2023 and there is optimism for a further cut, perhaps to 3.5%, in March; if inflation comes back under control.

This is great news for residential developers being coupled with a more competitive mortgage market and buyer confidence.  Demand is also returning to the commercial office sector with a strong push to quality and sustainable locations and continued confidence in the industrial/logistics sectors. Market sentiment in the retail and hospitality sectors, however, remain mixed with further occupier constraints arising from the business rate revaluation from April 2026; despite attempts by government to adjust the multiplier/rates payable calculations.

There may also be some hope for the development sector arising from proposed changes to planning policy in England at least with the publication of a completely revised Draft NPPF just before Christmas 2025; although consultation continues through until March 2026 and any changes are unlikely to appear much before the Summer.  

Although falling short of setting National Statutory Development Management Policies there is a very clear steer for LPAs to adhere to the direction set in the Draft NPPF which can help provide more certainty for compliant development proposals. 

There is also more confidence in Green Belt / Grey Belt proposals from government and the proposal to introduce a new “medium” development site with reduced obligations has potential to invigorate the smaller end of the development market which often has its own delivery risks and less deep pockets to carry the cost of a prolonged planning process.

However, I am less sure about the consultation on changes to the testing of development viability in planning being based on the Local Plan viability appraisals.  In my experience, the plan wide assessment is only ever feasible as a strategic guide. The process, by its very nature, is “high-level” adopting general types of development and heroic assumption on generic costs. Furthermore, development will be delivered over a long period during the life of a Local Plan which is likely to encounter many market cycles – especially if recent experience is anything to go by. 

That is not to say that I am, therefore, in favour of negotiating developer contributions on every planning application based on relevant and more detailed site information and market knowledge. Far from it, my concern is more about the flexibility that has been introduced resulting in the delivery of affordable housing being the last thing standing to be negotiated. 

We now have legislation mandating the provision of Biodiversity Net Gain, Community Infrastructure Levy (CIL where adopted) and soon a Building Safety Levy (also based on a standard charge on new floorspace) – all of which end up squeezing viability margins. In my view, only once such essential contributions which should include Affordable Housing provision are fully mandated (at least to a minimum level say maybe 20%) will the true cost of compliance properly feed into land value market transactions and be properly absorbed by developers.

If you are interested in an ‘Introduction to Development viability and finance’, join our RTPI upcoming online CPD masterclass. Please look for the dates in RTPI Training Calendar.

• During this online masterclass we will guide you through a development appraisal process. Providing you with an Excel model where you can test out various assumptions and cost inputs.
  
  
• You will explore your own local market to identify appropriate residential sales values. Through individual practice and guided class discussions, you will develop your skills scrutinising assumptions in the future.
  
  
• During the live online workshop, you will see how an appraisal comes together and understand how sensitive the viability can be to changes in assumptions and potential market risks. We also explore potential reasons behind repeat planning applications and the challenges of negotiating a viable land deal.