Planning, Viability and the Market
Capturing and Creating Value
5 December 2014
The Guildhall, Bath
The final RTPI South West CPD Conference of 2014 saw 165 delegates from local planning
authorities and consultancies across the region gather in the Guildhall, Bath to hear six
experts representing major developers, consultancies and local councils provide their
particular perspective on a complex and not always well understood aspect of the
development process.
Opening the proceedings, RTPI SW Chair 2014, Prof Chris Balch of Plymouth University,
reflected on how things had changed since the days when planners never sullied themselves
with thoughts of money and development finance ! Now, it was important that they had an
appreciation, at least, of the realities of development viability.
Nick Lambert, Head of DTZ’s Brownfield land practice, took delegates through the ‘drivers’ of
viability, starting with the questions – was planning a development enabler or a blockage
and was land value driving policy or was policy the ‘driver’ ? Increasingly it seemed that
viability had primacy, even if this conflicted with adopted policy and all of this now had the
attention of politicians. In terms of the market , there was evidence that ‘boom times’ were
returning, even though areas such as the South West lagged behind London in house price
increases. On the supply side, annual new housing completions, at around 14,000 and
rising, still had some way to go to match the 20,000 figure in 2007. In terms of land , the
‘brownfield first’ principle was being re-assessed, with studies such as the recent
UWE/CPRE work showing that, in theory at least, an area of brownfield land equivalent to
the built-up area of Cheltenham was ‘available’ for housing. With viability, the key
considerations were benchmark land values, development costs, anticipated revenues and
profit. Highest in adverse impact on viability was currently the affordable housing
requirement.
Nigel Jones of Chesters Commercial, with impeccable credentials as the joint author of the
RICS Guidance Note on ‘Financial Viability in Planning’, took the delegates through the ‘nuts
and bolts’ of the methods and assumptions involved in assessing financial viability of
projects. The two main methods of land valuation were residual value based or comparison
based. Considerations of viability were, however, inextricably linked to planning obligations –
Section 106 agreements or emerging CIL – both of which were seen as a tax on the
landowner, not the developer. It was thus the former who, in effect, decided what
development is, or is not, ‘viable’. Viability remained however a vague term in practice, which
even the Guidance Note team had struggled with ! Paragraph 173 of the NPPF had at least
made the landowner/developer relationship clearer, but efforts to tax landowners’ financial
gains from development had a long history : going back to the late 1940’s and the
introduction of the modern planning system and more recently, in the Development Land Tax
/ Community Land Act initiatives in the 1970’s. More recently still, the Barker Report on
housing supply had warned that over-taxation of landowners would lead to the supply of
housing land drying up, whilst the Lyons Housing Review ( 2014) had suggested compulsory
land acquisition in order to address the problem. On the matter of assessing market value of
land, many of the traditional approaches had been rejected by the RICS team, which
preferred to see market value as a ‘share in uplift’ in value created by a planning permission.
Lionel Shelly, Development Viability Officer, Plymouth City Council, introduced himself as ‘ a
development surveyor who had changed sides’. Using examples in Plymouth – a city to
which he had returned after working in London and Europe – he spoke about the ‘dark art of
negotiation’. Based on his experience, he advised all local planning authorities to challenge
developer viability claims, which often came with baffling terminology ! Breaking down the
arguments presented into their individual elements could aid understanding, as part of a
negotiation process over which it was always worth taking time.
The post-lunch session began by looking at the relationship between the emerging CIL
process, viability and plan making. Lin Cousins of Three Dragons, explained the concept of
‘whole plan viability’ in which assessment was based on looking at all elements of a
development plan, including policies on affordable housing, CIL, and housing design/quality,
as well as plan’s policies overall. She noted that there was now plenty of central government
guidance and regulation on CIL and referred to a study, by Three Dragons for DCLG, which
had looked at the period 2011-2012.This showed that whilst most local planning authorities
in England were planning to introduce the levy, the relationship between this and the well
established Section 106 system had yet to be clarified and issues remained about how to set
and collect the levy and about how to spend it. There were huge variations both between
and within the regions on planned CIL take-up and average rates [ in £’s per square metre of
development ] to be set. In the South West, about 70% of councils panned to use CIL,
compared, for example, to only 20% in the North East and North West and the rates to be
set in our region ranged between £20 and £120 ( a regional average of £75, compared to
£125 in the South East and £140 plus the Mayoral CIL, in London. There had been little or
no guidance so far on the process for allocating funds from the levies collected. In so
allocating, councils were going to have to grapple with often conflicting priorities in making
their decisions : all made extra complicated in 2 tier local government areas – as in much of
the South West ! On large ‘strategic’ housing sites planning authorities were, in many cases,
favouring the Section 106 approach rather than the application of CIL, because overall,
developers would have to pay more that way. Developers would probably prefer this as well
because with CIL they handed over complete control of spending on infrastructure etc to
councils.
Mary Elkington of Figura Planning, drew on her recent experience of putting CIL in place as
a planning officer in Teignbridge, to reflect on the examination process of proposed
schedules and upon future prospects for the system. Examinations of CIL proposals were
taking place at the end of the year in several South West authorities – South
Gloucestershire, West Dorset, Weymouth & Portland and BANES, all for example with
hearings in December 2014. [ On 30 January 2015, the Examiner declared the BANES
proposal, involving £50 per square metre on strategic sites, to be ‘reasonable, robust,
proportional, and appropriate’ subject to just three modifications ] In Teignbridge, although
the process of setting up the CIL had been run alongside that of preparing the Local Plan,
they had not been examined together as the Inspector had wanted to get the policies in the
latter clarified first. The Local Plan was adopted in May and the CIL in July 2014. Overall,
there was evidence that the CIL process was becoming more routine and that the majority
feeling was that this new regime was a good thing and would be in place for some time to
come.
The final speaker, Bath based developer Trevor Osborne, of the Trevor Osborne Property
Group, brought all of his 50 plus years of experience in the business to bear in his reflections
on the role of planning in helping or hindering successful development delivery. At a time
when there was no planning system at all, he reminded delegates that it was pure market
forces that drove John Wood to build the Royal Crescent ‘above the hamlet of Bath’ as part
of a Georgian city which has now become a World Heritage Site! Nowadays, planners’
responsibilities to the community as a whole sat uneasily alongside the motives of
developers, including profit/return on investment, return on capital employed, risk control. He
added however, that making a worthwhile contribution to society was a genuine motive of
many developers ! Market situations, he noted, were liable to change in unexpected ways,
citing as an example, the fact that currently in Bath, land was more valuable as new student
accommodation than it was for anything else other than retail use. Picking up on the issue of
affordable housing referred to by previous speakers, he asked whether it really was the job
of the development industry to build such dwellings ? Reflecting on the current severe
housing shortage and the seeming lack of ‘acceptable’ solutions, he commended the
Wolfson Prize completion initiative. Speaking as Chair of the judging panel, he enthused
about the scale of the response - 274 entries- and believed that each of the five shortlisted
ones was well worth reading for the quality of the intellectual thinking displayed. Whatever
‘solution’ to the housing crisis finally emerged, it was clear that many people were unhappy
with the ‘standard dismal professional response’ of yet more town extensions ! It was also
clear that new ‘garden cities’ would have to play a significant part. He was not at all sure that
the current panning system could deliver a solution and even wondered whether there was
even a need anymore for a local authority linked planning system ? Still, despite all this, his
final message was to urge planning professionals to be positive and not to accept the
popular public perception that they were a hindrance !!
Geoff Walker
RTPI SW Policy Project Officer February 2015