Statement from London Borough of Barnet
Issue 1: Evidence Base
Matter 1: Infrastructure needs
Is the schedule of infrastructure requirements based on an up to date
Core Strategy and Infrastructure Delivery Plan (IDP)?
Has the IDP been prepared to include only infrastructure required to
support the development of the area?
Are the estimates of likely income from CIL accurate?
Has account been taken of all other sources of funding?
Does the evidence show a likely funding gap?
The Council adopted its Local Plan Core Strategy (CS) in September 2012
(DOC REF), which provides the framework to sustainably deliver the
Borough’s plans for Protection, Enhancement and consolidated Growth of
the local area and create a quality environment that will have a positive
economic impact on surrounding neighbourhoods. It recognises and
responds to the significant housing challenge in London, providing for the
majority of housing and economic growth to be focused in regeneration
schemes including growth areas, priority estates and priority town
centres. The housing trajectory, paragraph 7.2.16, that underpins these
growth plans identifies delivery of 28,000 new homes and a particular
concentration of commercial development in the Brent Cross Cricklewood
area up to 2026.
Taking a coherent and in depth approach to infrastructure planning, we
have developed a comprehensive living ‘Infrastructure Delivery Plan’ (IDP)
(DOC REF), that is used to support the growth and development proposed
within the CS; in practice this document is used internally to inform the
prioritisation and allocation of capital resources. The IDP is maintained as
an up to date resource, and was last formally approved by members and
published in November 2011. This version included a comprehensive
picture in terms of the need and current infrastructure proposals
developed through dialogue with different services and public bodies.
The context is important to the question about whether the infrastructure
identified is only required to support development in the area, as the
relative balance between available public sector funding and developer
funding for delivery of new or improved infrastructure must be recognised.
Using the figures from the IDP and Charging Schedule, it is clear that only
23% of the infrastructure funding identified is anticipated to come from
planning obligations / the community infrastructure levy, achieving an
anticipated combined total of £30m by 2016. This figure is established by
adding the Planning Obligations income from Figure 7 of the IDP to the
total anticipated CIL income in the Charging Schedule (£135/sqm x the
estimated floor space figure from Appendix 1). Should this estimate for
income be inaccurate it is more likely to be an overestimate, as some
development schemes could potentially slow down and therefore the
infrastructure delivery would need to be re-profiled accordingly.
The Infrastructure Delivery Plan has been prepared to address all
infrastructure needs relating to population growth and development. It is
impossible to separate these two matters as development could not be
sustainable if the impact of natural population growth within the existing
built environment is not first addressed. For this reason the Council has
looked at all infrastructure required to support growth as well as all
funding available to support such infrastructure. The IDP identifies all
funding streams available in autumn 2011. Broadly speaking the position
is unchanged since last year save for minor adjustments where income
was projected. Importantly even a 5% variation to the total income
would make little impact on the overall £92m Infrastructure Funding Gap.
Regulation 16 requires the Council to ensure that ‘relevant evidence’ is
made available for inspection and published on its website. Such evidence
was made readily available during the consultation periods and has
informed the Council’s preparation of its draft charging schedule. The
Council’s published IDP is considered by the Council to be the most
relevant and available information for meeting the requirement in
Regulation 14(1a) to understand the “estimated total cost of infrastructure
required to support the development of its area, taking into account other
actual and expected sources of funding”. It is therefore considered that
sufficient and relevant evidence has informed the identification of the
infrastructure funding gap within the Borough.
Matter 2: Economic viability evidence
Is the CIL Viability Study (VS) based on sound data?
Are the various elements, including land values, sale prices, building
costs, fees and profits levels accurate and up to date?
Are the assumptions in the appraisals based on realistic scenarios?
The Council has sought to follow section 212(4) (b) of the Planning Act
2008 (The Act), referred to in Paragraph 6 of the Statutory Guidance on
Charge Setting and Charging Schedule Procedures (The Guidance), which
requires the Council to use “appropriate available evidence to inform the
draft charging schedule”. The Council therefore looked to the available
existing area wide Affordable Housing Viability Appraisal (VS) (DOC REF)
work developed to underpin Affordable Housing policy within the CS. This
document was not directly applicable in its extant format, and therefore
the Council commissioned an Update Report (UVS) (DOC REF) from BNP
Paribas to ensure that the existing evidence could be used appropriately in
the context of developing a CIL charging schedule.
The VS and UVS is considered sound because the data underpinning the
assessment is appropriate to the local area, has been carefully reviewed
and established using available and suitable information, is often
presented within an appropriate range of confidence and final decisions
have been selected through professional independent judgement,
examples of this approach include:
(i)
Existing Use Values (EUVs) that closely reflect the value of
the current use “on the range of sites that typically come
forward for development in Barnet”, (VS, Paragraph 4.9).
Therefore the data explicitly recognises that only land that is
relatively underdeveloped or with existing low yields will
come forwards for development, an average value for each
land typology has then been identified (emphasised again in
UVS, Paragraph 3.21).
(ii)
Densities have been considered within a range through which
development could be delivered; average unit mixes for each
density band have been selected and were informed by the
Council’s housing needs survey (VS, Paragraph 4.20, 4.21).
(iii)
The variables inputted into the appraisals (VS, Paragraph
5.6) are all sound and reasonable judgements of the key
variables.
(iv)
The build costs at each density are based on average data
available to BNP Paribas through its banking and loan
operations; these are considered reasonable figures for use
in the appraisal. The Update Report considered build costs
for quarter 3 of 2011 using the RICS Building Cost
Information Survey Index to ensure appropriate figures were
used (UVS, Paragraph 4.7 & 4.8).
(v)
The sales values used in the appraisals are considered highly
appropriate as they are based on research and consultation
by BNP Paribas with local agents on transacted property
values using the base date of February 2010 (VS, Paragraph
4.17). The Update Report considered that since February
2010 house prices in Barnet had increased, returning close to
2007 market values albeit through a reduction in sales
volumes, therefore the figures used in the appraisal were still
highly relevant (UVS, Paragraph 2.7 & 2.8).
In the judgement of BNP Paribas, the Council’s independent assessor of
development viability, the input variables used within the appraisals are
considered sound and appropriate. The provision of appraisal outputs in
over 60 tables means that a range of realistic scenarios have been
considered, and even though these cannot cover the exact issues for
every development scheme, it is considered to be a sufficiently
comprehensive approach that does not give undue weight to individual or
specific development schemes with specific issues. The Council therefore
considers that it has met the requirements of Regulation 14 (1) (b)
regarding consideration for the potential effects of CIL on area wide
viability.
[1272 words]
Issue 2: Are the charging rates informed by and
consistent with the evidence
Matter 3: Residential
Is the charging rate soundly based on evidence of housing values across
the Borough?
Do the CIL charges take into account the provision of affordable housing,
on all sites, of any size?
Do the residential rates take into account reasonable assumptions about
site specific S106 requirements?
Are the arrangements for and likely impacts of S 106 requirements clear?
Why does the charge not reflect the clear differences in residential
viability levels across the Borough?
The VS (DOC REF) and UVS (DOC REF) include housing values in terms of
sales prices per square metre from Land Registry data (UVS, Paragraph
2.8) as a core component of the viability appraisal process and research
by Savills (UVS, Paragraph 2.10) in order to project future changes in
house prices. From this information it was possible to identify the broad
categories of sales values that could appropriately be applied, and these
are used in the viability appraisal tables. The Council’s UVS indicates that
were the Council to consider differential rates, it could introduce three
maximum CIL rates for residential development of £210, £250 or £350
per sqm, dependent on the location in the borough (UVS, Paragraph 7.5).
In deciding to set a single rate of CIL lower than these maximum rates
that could be charged, the Council took a view that confidence and
certainty for developers was required in the short term given the broader
economic challenges for new development. An upward trend in the
development market is not certain, and therefore a simple and
straightforward CIL rate that is broadly comparable to or less than
existing s.106 tariffs was required to be introduced in order to reassure
developers and bring confidence to the development community through
the transition to CIL. So despite the possibility of differential rates being
introduced to potentially secure additional CIL income, it was felt that a
more reasonable approach was to focus on a simple, single and broadly
comparable rate, provided that the Council reviews the CIL rates in the
near future to account for the potential for increases to viability in the
residential development market; three years from adoption, in 2016, was
deemed a suitable period for supporting this transition process.
Furthermore, the requirement for the Council to revise its affordable
housing target from 30% up to 40% as agreed within the Core Strategy
Examination Process in December 2011/January 2012 could have meant
that any CIL rate proposed close to maximum viable thresholds would
have then affected the viability of development across the Borough,
necessarily requiring a process of reappraisal of the proposed CIL rate/s.
However as a result of the Council’s decision to select a £135 single flat
rate of CIL, despite the policy change, together the introduction of CIL and
a 40% affordable housing target will not impact on the viability of
residential development.
In calculating the residual values, BNP Paribas incorporated the following
assumptions (UVS, Paragraph 6.5):
(i) a residual level of Planning
Obligations of £20/sqm, (ii) minimum open space standards and
requirements, (iii) Mayoral CIL of £35 /sqm. It is therefore considered
that the rate introduced makes full allowance for the impact of other
policy considerations that impose a cost upon development outside of the
direct considerations within the viability appraisal process itself. Certainly
the £20/sqm planning obligation allowance should be sufficient to address
the requirements of minor developments and small major developments.
The Council recognises the importance of reviewing planning obligations
policies alongside the introduction of a CIL rate to ensure that a suitable
balance can be struck that does not affect development viability across
the area or in terms of a specific form or scale. The Council has therefore
published for public consultation its draft ‘Planning Obligations
Supplementary Planning Document’ (SPD) (DOC REF) to provide clarity
and guidance on the totality of obligations that will be considered in
relation to new development, as well as to ensure that there is a clear and
sound process for negotiating Planning Obligations and considering how
these can appropriately sit alongside CIL payments and expenditure.
The draft Planning Obligations SPD recognises three forms of planning
obligation: ‘Prescribe’, ‘Mitigate’ and ‘Compensate’ (SPD, Paragraph
2.3.3). The introduction of CIL has been defined (SPD, Paragraph 2.3.4)
to replace the need to set planning obligation tariffs for off site
contributions to mitigate for the impacts on strategic infrastructure. The
relationship between Planning Obligations and CIL is therefore a particular
concern in relation to Regeneration Areas and other places where ‘on site’
planning obligations are required to make development acceptable. Such
requirements could not be accounted for within an area-wide approach to
viability appraisal; therefore through exceptional circumstances relief or
considering expenditure of CIL options (SPD, figure 1, page 13) the
Council is seeking to provide mechanisms to address the risk of ‘double
charging’ created when setting a CIL rate upon these development areas.
The interaction of the CIL Charging Schedule with Planning Obligations
policy was a particularly important matter for the Brent Cross Cricklewood
development partners, which alongside some specific concerns regarding
the wording used in the Draft Charging Schedule, was sufficient cause for
concern to require a formal objection to the Charging Schedule proposals.
However, through speeding up the timetable for finalising and
commencing public consultation on the revised Planning Obligations
document, alongside agreement to the additional corrections which were
submitted by the BXC partners (DOC REF); the Council has been able to
agree a Statement of Common Ground (DOC REF) with the development
partners that ensures such concerns can suitably be addressed through
the proposed processes for negotiation of planning obligations.
Matter 4: Retail development
Are the assumptions in the retail viability scenarios of the VS robust and
consistent with the evidence?
Why has the council not proposed a lower retail rate in those parts of the
Borough where retail viability is less secure?
Is the rate justified in general terms?
The assumptions used in the retail viability scenarios (UVS, Paragraph 4.6
to 4.10) are considered robust because they were developed by BNP
Paribas – the Council’s independent assessor of area-wide development
viability, within which they have adopted an appropriate figure for the
capitalisation of yields, used standardised figures for build costs linked to
the RICS Building Cost Information Survey Index, letting fees,
professional fees, appropriate financing costs, a developer profit of 20%,
recognition that new build achieves a higher rent than existing floor space
and a 15% premium on existing uses in order to bring forward land. In
practice this land premium is often not required as new retail is usually
brought forward in relation to reinforcing the market share of existing
retail development through increasing appeal and introducing a retail mix.
The sales rates included are based on actual lettings data over a two year
period showing the retail yields available by postcode (UVS, Paragraph 4.3
and Table 4.4.1).
The particular value of how this information is
presented is that it demonstrates the wide range of rents achieved in
some areas, indicating that the size and quality of floor space, or specific
location benefits, will influence the likelihood of development in such areas
being viable inclusive of a CIL contribution. As set out (UVS, Paragraph
4.2) commercial schemes will not come forwards unless they deliver
additional value through intensification or increased yields. Only schemes
in each area where viable yields can be achieved are likely to come
forwards for development. This means that despite some areas ‘on
average’ being considered unviable, in reality there is a mixed local
background picture that underpins that perspective. Areas with a
particularly significant range of retail rents included:
i.
HA8 (Edgware and Burnt Oak):
ii.
N11 (Friern Barnet),
iii.
N12 (Woodside Park and North Finchley),
iv.
NW7 (Mill Hill and Mill Hill East).
£15 (unviable) - £30 (CIL = £524),
£8.5 (unviable) - £33 (CIL > £524)
£13 (unviable) - £47 (CIL > £925)
£28 (CIL > £136) - £44 (CIL > £925)
The above information is relevant when considering representations
submitted in relation to the decision not to adopt differential rates of CIL
for retail development by area, despite the adoption of differential rates
being possible according to the evidence base. The reality, as shown
above, is that there will be some development within each postcode that
could be written off as unviable in any event, and some developments
that would be viable even with higher CIL charges.
Specifically addressing the concerns of the Edgware Broadwalk Centre
team, presented to the Council through pre application sessions after the
close of the Draft Charging Schedule consultation, the range of viability
within the HA8 postcode sector would lend itself to the view that the Major
Town Centre of Edgware is likely to demand medium to higher levels of
rent, with smaller retail parades and the lower value Burnt Oak District
Centre likely to account for the lower and unviable rents listed within the
range. Furthermore, the specific issue with regards to development
around the Broadwalk Centre Site is linked to the requirement to pay CIL
on any new multi-storey car park without the possibility of offsetting the
floor space against the existing surface car parking. Unfortunately this is
a problem relating to the CIL regulations. Therefore in isolation it is not a
strong reason for arguing against setting a single CIL rate across the area.
In general terms therefore the decision to introduce a £135 single flat rate
of CIL, rather than a complex mixture of rates by area and use class, is
considered to best meet the test set out in Regulation 14. The Council
has aimed to strike an appropriate balance between the desirability of
seeking to fund the estimated total cost of infrastructure required to
support the development of the area and the potential effect of the
imposition of CIL on the economic viability of development across the
area. In so doing it has decided that a single lower flat rate for the area is
the most appropriate approach to both support infrastructure delivery and
delivery of local development in the short-medium term.
Matter 5: Office, industrial, warehouse and other employment
development
The viability shows that none of these developments would be viable if CIL
is charged; is there any other evidence that the charge will not deter
development across a wide range of employment uses?
The Charging Schedule identifies the historic pattern of commercial floor
space being delivered in Barnet over the past 7 years since the Annual
Monitoring Report (AMR) was introduced. This demonstrates a history of
very little new office and industrial floor space being delivered, and in
almost all cases through (i) mixed use developments, (ii) replacement for
existing commercial floor space, or (iii) the introduction of mezzanine
retail floors that wouldn’t be CIL liable under the regulations. This historic
pattern underscores the view taken in the UVS that new office and
industrial development was unlikely to come forward in the near future.
Moreover the Council is increasingly seeing applications for conversion of
existing office floor space to residential / hotel uses and redevelopment of
industrial sites as new mixed use schemes because these will secure
greater overall yields for the landowner. Such developments ideally
involve some level of re-provision of A2 or B1 office floor space,
particularly when located in town centres, but in most cases they rarely
involve the creation of additional floor space, so are not liable to pay CIL.
Matter 6: Other development
Does the evidence demonstrate that the majority of development (other
than residential and retail) would not be viable if a levy was charged?
What evidence is there that community development will be viable, even if
an exceptions policy (which includes legal requirements for Section 106
contributions at least equivalent to the CIL charge) is implemented?
The Council has looked into the types of ‘other’ floor space that are likely
to be developed in the near future that will deliver over 100 sqm of net
additional floor space, and these essentially fall into four categories:
i.
Large leisure uses delivered as part of a mixed use scheme (e.g.
multiplex cinemas built in shopping centre developments) - any
minor viability issue linked to the single rate could be addressed
through the mixture of uses brought forwards.
ii.
Large educational, community facilities or places of worship –
most likely these will be brought forwards by registered
charities, and therefore would be eligible for Charitable Relief.
iii.
New schools, extra care facilities or other large community
facilities delivered by Barnet Council or on behalf of Barnet
Council in order to address a strategic need. Where these are
not undertaken as a change of use application or <100sqm
expansion to existing floor space, then the Council can
incorporate the project into its IDP and apply an appropriate CIL
contribution towards the cost of delivering the project.
iv.
Health facilities and facilities related to other public sector
partners such as the Metropolitan Police and London Fire and
Emergency Planning Authority. Again where such projects are
identified as meeting a necessary or critical infrastructure need,
then there is no reason why any project would not be deemed
eligible for a CIL contribution.
The majority of community uses to be delivered that will fall within the
broad umbrella of ‘other’ uses will be grant funded in some way or other,
and therefore the introduction of a CIL charge would add an additional
cost to delivering that development. The identification of the step of
considering either the use of exceptional circumstances relief or reviewing
CIL expenditure plans within the SPD (SPD, Figure 1, Page 13) provides a
means of addressing these problems when they occasionally arise. In
parallel, the less viable commercial uses such as leisure facilities and
specific forms of residential development delivering particular community
needs will be able to benefit from (i) the use of exceptional circumstances
relief where very large schemes include such beneficial uses or (ii) cross
subsidy through mixed use development or alternatively (iii) the
expenditure or allocation of CIL income where this would be compliant
with legislation. The IDP provides a tool for capturing where such ‘other’
uses are of particular necessity in relation to the Council’s growth plans.
Ongoing changes are made to the IDP as required to reflect the changing
needs of growth and development in the borough or strategies of service
providers; this takes place as and when dialogue with public services /
infrastructure providers identifies the need for revision. No provider of
public infrastructure, including the Metropolitan Police and London Fire
and Emergency Planning Authority, should be concerned about potential
future projects currently being left out of the IDP, because these can be
added as the organisational infrastructure plans develop. The Council has
made a commitment through Paragraph 3.8.2 and 3.8.3 of the Charging
Schedule to ensure appropriate CIL expenditure is made available to
infrastructure projects that have become CIL liable through the
introduction of the single CIL rate yet deliver wider community benefit.
In terms of ‘other’ uses the decision to introduce a £135 single flat rate of
CIL is recognised to deliver specific viability challenges, but rather than
having a complex mixture of rates by area and use class a single rate is
considered to best meet the test set out in Regulation 14. The Council
has aimed to strike an appropriate balance in relation to the potential
effect of the imposition of CIL on the economic viability of development,
but in so doing it has decided that there is insufficient ‘other’ development
planned to justify not setting a single flat rate and therefore delivery of
local development can be assured in the short-medium term.
[2604 words]
Issue 3 – Will the rates put the overall development of
the area at risk?
Is the rate a reasonable proportion of development costs?
What will be the effect on affordable housing provision?
Will the rates prove to be a drag on housing, retail and employment
growth?
What will be the effect on the provision of community facilities?
Has an appropriate balance between helping to fund new infrastructure
and the potential effects on economic viability been achieved?
The CIL rate proposed by Barnet is a very reasonable level of the build
costs accounted for within the Viability Appraisals, less than the premium
landowners will take for making land available to develop and far less than
the level of profit a developer requires. Specifically, using the range of
build cost /sqm figures listed in the viability appraisals: £1022 £2010/sqm (UVS, Paragraph 5.9), the rate of CIL levied upon residential
development is equivalent to 7 - 13% of build costs, making it broadly
equivalent to the marketing / letting fees applied to a development. Office
and retail rates for build costs used in the viability appraisals are
£1305/sqm and £901/sqm respectively (UVS, Paragraph 4.7), meaning
that CIL equates to 10-15% of commercial floor space build costs. In all
cases the rate of CIL is less than the 15% landowners’ premium built into
the Existing Use Values within the viability appraisals to enable land to
come forwards for development, and far less than the 20% developer
profit on cost included within the residual valuation calculations.
The development land supply identified by the Council comprises of mainly
two types of existing land uses brought forwards for redevelopment (UVS,
Paragraph 6.7). The major development sites either secure the level of
density upon an existing residential / commercial site or involve change of
use of a site from industrial / community uses in order to deliver
development. Such changes are identified through the viability appraisals
to be highly viable at the sales rates achievable across the Borough, even
with the added cost of affordable housing requirements. The other kind of
highly viable development relates to minor development sites where
either there is conversion of existing buildings, so called ‘garden grabbing’
or simply an increase in density through replacement of single dwellings
with a block of flats, all of which are not subject to affordable housing
requirements due to the scale of development. Therefore the combined
impact of CIL and affordable housing requirements will not make
development unviable.
With 95% of Barnet’s anticipated development pipeline to 2016 being
residential development (Charging Schedule, Appendix 1), it was felt that
immediately after a major recession it would be too great a risk to local
employment, economic growth and housing delivery to introduce a CIL
rate that would increase the overall charge upon development beyond
existing s.106 requirements, as this could further act to dry up the supply
of land coming forwards for development.
To avoid landowners /
developers land banking until sales values raise again, the Council
determined not to push development viability at this time. Sensitivity
analysis was undertaken (UVS, Paragraph 4.1.4) and this identified that a
25% increase in the CIL rate would only increase income by £3.2m, whilst
significantly increasing the risk of sites coming forwards. This approach in
actuality may lead to at least the same level of CIL income or more than if
sites did not come forwards during the period and no CIL was paid at all.
The effect of CIL on the viability of community facilities was explored fully
in Matter 6; this recognised that although the VS explores the opportunity
for differential rates to be set, with a community uses (D1) rate of zero,
the negative impacts of a £135 /sqm flat rate can be addressed to ensure
that critical and necessary community infrastructure can still be provided.
Only in the regeneration areas is it possible to foresee community facilities
that might be brought forward by a developer as part of a package of
requirements that would mean it is no eligible for relief, in these
circumstances the use of exceptional relief or the ability for the Council to
agree to apply CIL income towards delivery of specific facilities can be
agreed up front in the Planning or developer agreements in order to
provide the required level of certainty for the developer. At present the
Council has therefore received no example of a community facility that will
be made unviable by the approach being taken by the Council.
In the opinion of the Council, the decision to apply a rate of £135 /sqm
upon all eligible development within the borough meets all the tests set
out in Regulation 14. The rate is considered to strike an appropriate
balance between the cost of funding infrastructure and the potential
impact of CIL on the viability of development across the Borough. The
anticipated annual administrative costs have been made clear in the
Charging Schedule and these costs can be accommodated within the
monitoring percentage outlined. Furthermore contrary to the assertion in
the consultation response from UBS (Savills) (DOC REF), the Council has
ensured that its VS fully accounts for the Mayoral CIL within the residual
valuation calculations and the rate included is £35 /sqm (UVS, Paragraph
7.4), as adopted in the Mayoral Charging Schedule in February/March
2012 (DOC REF).
[878 words]