Purbeck District Council
Community Infrastructure Levy and
Development Viability Assessment
Final Report
February 2013
Dr Andrew Golland, BSc (Hons), PhD, MRICS
Andrew Golland Associates and Corbens
drajg@btopenworld.com
Contents page
Page
Chapter 1 Introduction
3
Chapter 2 Methodology
7
Chapter 3 High Level Testing
10
Chapter 4 Further policy and market tests
18
Chapter 5 Commercial Property Viability Analysis
20
Chapter 6 Main findings and conclusions
25
Appendix 1
Workshop notes
28
Appendix 2
Method statement
34
Appendix 3
Commercial Property Appraisals
35
Appendix 4
Worked example of an appraisal
46
Glossary of Terms
Purbeck CIL and Development Viability Assessment – February 2013
59
Page 2
1
INTRODUCTION
Review of project aims and background to the project
1.1
Purbeck District Council appointed Dr Andrew Golland and John Corben of
Corbens Chartered Surveyors, Swanage, to carry out a CIL (Community
Infrastructure Levy) Viability Study. This is in response to the Council’s
potential implementing of a Community Infrastructure Levy in accordance with
Section 206 of the Planning Act and the Community Infrastructure Levy
Regulations 2010.
1.2
The aim of the study is to undertake an assessment of the economic viability
of the borough with a view to setting a CIL rate (s) for the Councils proposed
Community Infrastructure Levy, for both residential and non-residential
development, taking account of a range of financial and other variables
including different levels of affordable housing, and in accordance with the CIL
Regulations and related government guidance.
1.3
The main objectives of the study are to make recommendations on an
appropriate level of CIL to be introduced in Purbeck (including where
appropriate, differential rates in defined zones either by development type
and/or location). This will need to take account of current and projected
market conditions.
1.4
Furthermore to recognise the Council’s commitment to achieving 40-50%
affordable housing from new residential sites and to take this into
consideration when recommending the appropriate level(s) of CIL.
1.5
Further to undertake a workshop with the development industry and other
stakeholders and to support the Council’s engagement with the local
development industry and other stakeholders when consulting on potential
CIL rates;
1.6
Finally, to provide a report which will act as robust evidence to support and
inform the Community Infrastructure Levy (CIL) Charging Schedule
throughout the statutory planning process.
1.7
The Council are keen to have a methodology in place that is consistent with
the approach adopted in the Affordable Housing Viability Study carried out in
2010 by Three Dragons. That study established a sub market framework for
analysis with respect to the residential component of this (CIL) study. This
approach is further consistent with government guidance to local authorities in
preparing CIL schedules.
General provisions of CIL
1.8
The CIL Viability Study will need to establish a testing ‘framework’ that reflects
the legal context of CIL, mostly helpfully set out in DCLG’s ‘Community
Infrastructure Levy: An Overview (May 2011). Significant points in framing the
analytical framework for a Viability Study are:
Purbeck CIL and Development Viability Assessment – February 2013
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
All types of development (housing, commercial and other uses) should be
viability tested. This means the testing process is in principle, extensive;

CIL is payable on floor area, not units. It is furthermore payable on net
increases in floorspace. Since many developments involve demolition,
only low payments may ensue. However, it would appear that studies
completed so far have taken a ‘worst case’ scenario, being based on gross
development areas;

Exemptions to a CIL charge – Affordable Housing and Charity projects.
This does not mean that Affordable Housing does not have to be tested;
just that where mixed tenure development scheme examples are tested,
no CIL charge is applied to the Affordable Housing element;

CIL can be used to cover a range of infrastructure uses: physical, social
and environmental. Thus the testing framework should aim to test
ambitious CIL scenarios wherever practicable.
Local market and policy considerations: key points
1.9
The Purbeck Local Plane Part 1 (PLP1), formerly known as the Core Strategy,
was adopted in November 2012.
1.10
The Council are reviewing the Infrastructure Plan. This work is not yet
complete but the Viability Study should take this into account in so far as is
possible.
1.11
A key consideration in viability is the Heathlands contributions. It is
mandatory that this is paid as it falls under EU legislation. Because CIL is
levied on market (and not affordable) housing, and the Heathlands
contribution is levied on all housing developed, it will be necessary for the CIL
to be set at a level which covers 10 new units for every 6 market units built.
1.12
The County Council also require significant transport contributions. However,
not much is being collected at the moment due to the low level of housing
development.
1.13
There are very few large strategic infrastructure issues in Purbeck. There are
no major infrastructure projects planned.
1.14
The New Homes Bonus will have a disadvantageous effect in Purbeck. It is
likely to mean levels of government grant will fall relative to previous years.
1.15
There is not likely to be any additional funding to reduce the requirement for
CIL.
1
Purbeck CIL and Development Viability Assessment – February 2013
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1.16
Population levels are likely to remain virtually static in Purbeck over the next
15 or so years.
1.17
There are very few strategic employment sites in Purbeck. Holton Heath has
contributed significant land in recent years.
1.18
There is a ready demand for smaller retail units in Swanage. However, in
some locations of the town demand is low and there are empty units.
1.19
In the rural areas, commercial property is generally in weak demand. Post
offices and village stores are struggling to make a profit.
1.20
Schemes for mixed commercial and residential are not proceeding because of
viability constraints.
1.21
It is likely that the commercial property market in the District will be hit hard
over the next few years.
Research undertaken for this study
1.22
There were four main strands to the research undertaken to complete this
study:

Discussions with a project group of officers from the Council to help
inform the structure of the research approach;

Analysis of information held by the authority, including that which
described the types of sites coming forward;

Use of the Three Dragons Toolkit to analyse scheme viability (and
described in detail in subsequent chapters of this report);

A workshop was held with developers, land owners and their agents from
the Borough. The feedback notes from the Workshop are shown at
Appendix 1 of this report.
Structure of the report
1.23
The remainder of the report uses the following structure:

Chapter 2 explains the methodology we have followed in, first, identifying
sub markets and, second, undertaking the analysis of development
economics. We explain that this is based on residual value.

Chapter 3 describes the analysis of residual values generated across a
range of different development scenarios (including alternative
percentages and mixes of affordable housing) for residential schemes.

Chapter 4 provides sensitivity analysis in relation to the trade-offs
between affordable housing contributions and CIL.

Chapter 5 focuses on commercial schemes and tests a range of
developments across the commercial use class orders. This chapter
Purbeck CIL and Development Viability Assessment – February 2013
Page 5
draws to a significant extent on the experience of Smiths in the local
commercial property market.

Chapter 6 summarises the evidence collected through the research and
provides a set of policy options.
Purbeck CIL and Development Viability Assessment – February 2013
Page 6
2
METHODOLOGY
Introduction
Viability – starting points
2.1
We use a residual development appraisal model to assess development
viability. This mimics the approach of virtually all developers when purchasing
land. This model assumes that the value of the site will be the difference
between what the scheme generates (scheme revenue) and what it costs to
develop (build costs and developer margin). The model can take into account
the impact on scheme residual value of affordable housing and other Section
106 contributions or CIL where this is being tested.
2.2
Figure 2.1 below shows diagrammatically the underlying principles of the
approach. Scheme costs are deducted from scheme revenue to arrive at a
gross residual value. Scheme costs assume a profit margin to the developer
and the ‘build costs’ as shown in the diagram include such items as
professional fees, finance costs, marketing fees and any overheads borne by
the development company.
Figure 2.1
Viability, CIL and Affordable Housing
2.3
The gross residual value is the starting point for negotiations about the level
and scope of Section 106 or CIL contribution. The contribution will normally be
greatest in the form of affordable housing but other Section 106 items or CIL
will also reduce the gross residual value of the site. Once the Section 106
contributions/CIL have been deducted, this leaves a net residual value.
2.4
Calculating what is likely to be the value of a site given a specific planning
permission, is only one factor in deciding what is viable.
Purbeck CIL and Development Viability Assessment – February 2013
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2.5
A site is extremely unlikely to proceed where the costs of a proposed scheme
exceed the revenue. But simply having a positive residual value will not
guarantee that development happens. The Existing Use Value (EUV) of the
site, or indeed a realistic alternative use value for a site will also play a role in
the mind of the land owner in bringing the site forward and thus is a factor in
deciding whether a site is likely to be brought forward for housing.
2.6
Figure 2.2 shows how this operates in theory. Residual value (RV) falls as the
proportion of affordable housing increases. Where RV is greater than EUV
and a developer margin is provided for, a viable situation is possible.
Figure 2.2
Residual Value (RV) and Existing Use Value (EUV)
2.7
Where RV is equal to the EUV and there is relatively little incentive in theory
to bring the site forward.
2.8
As the diagram shows, other impacts, in the form of either CIL or Section 106,
will reduce the viability of a development since their aggregate effects are to
bring residual value closer to EUV.
2.9
Where grant is available for affordable housing, the economics will improve
and the red and blue lines will be shifted to the right of the chart, making it
easier for the new development to generate a margin over the EUV.
2.10
The analysis we have undertaken uses a Three Dragons Viability model. The
model is explained in more detail in Appendix 2, which includes a description
of the key assumptions used.
Purbeck CIL and Development Viability Assessment – February 2013
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Purbeck CIL and Development Viability Assessment – February 2013
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3
RESIDENTIAL VIABILITY ANALYSIS
Introduction
3.1
This chapter of the report considers viability for residential schemes including
affordable housing.
3.2
We have selected a range of development types across a range of scheme
sizes and densities, and across a range of sub markets. This provides the
basis for understanding the extent to which a CIL may be applicable and
viable.
3.3
The chapter explores the relationship between the residual value for the
scenarios tested and existing/alternative use values.
Sub Market areas
3.4
Variation in house prices has a significant impact on development economics
and the impact of affordable housing on scheme viability.
3.5
We have taken a consistent approach to the determination of sub market
areas in line with the Council’s Affordable Housing Viability Study (AHVS),
completed in August 2008 and updated in November 2010.
3.6
Those studies undertook a broad analysis of house prices in Purbeck DC area
using HM Land Registry data to identify the sub markets. The house prices
which relate to the sub markets provide the basis for a set of indicative new
build values. Table 3.1 below sets out the sub markets in the District
developed for the AHVS and this study.
Purbeck CIL and Development Viability Assessment – February 2013
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3.7
The sub markets are as follows when mapped:
3.8
From the original policy development work, the Council adopted a split
affordable housing target, aiming for 50% delivery in the Coast and Swanage
sub markets and 40% affordable housing in the other four sub markets.
Purbeck CIL and Development Viability Assessment – February 2013
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Testing assumptions
3.8
The analysis is based on a range of policy tests. Specifically, affordable
housing targets of 20%, 30%, 40% and (in the case of the two highest value
sub markets) 50%.
3.9
We have generated residual values that are gross of any other (than
affordable housing contributions). In other words, the tests have not included
the impact of any other (than affordable housing) contributions. If there are
therefore contributions to cover items included within CIL or conventional
Section 106, these will have to come from the residual generated after the
affordable housing has impacted on the scheme.
3.10
As ever, and as discussed in Chapter 2 in particular, whether a scheme is
viable will depend on the relationship between residual and existing use
value.
3.11
A full range of schemes are tested here. Table 3.2 overleaf shows the range
included. We test a very small scheme of two dwellings through to a scheme
of 300 dwellings. As with our previous analysis, these remain notional sites.
Actual sites will be negotiated in most cases according to site specific
circumstances.
3.12
The affordable housing policy applies to very small sites as for larger ones.
Thus the range of tests applies across all schemes.
3.13
We have applied at 10% reduction for land finance for all sites below 50
dwellings. A cost of 15% for the scheme of 50 dwellings and a land financing
cost of 20% for the schemes of 100 and 300 units.
Purbeck CIL and Development Viability Assessment – February 2013
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Table 3.2
Sample of residential schemes tested
Purbeck CIL and Development Viability Assessment – February 2013
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3.14
Table 3.2 shows schemes tested from a single residential unit (detached
house) through to a large scheme of 100 units. As with the AHVS the
schemes are notional only. The testing of individual sites is most properly
done where full information is agreed between developer and the local
authority.
3.15
Table 3.3 shows the results of the viability testing. It shows residual values in
£ million per hectare. The table shows that we have tested both policy
options across the range of housing sub markets.
3.16
The challenge in delivering a CIL is that in Purbeck the affordable housing
policy ‘catches’ small sites. This has both the advantage of creating a level
playing field between large and small sites but also the disadvantage that
affordable housing is impacting across virtually all scheme sizes.
3.17
Viability however remains strong in the Purbeck District. Residual values are
generally high, and very high in the higher sub market areas. Taking for
example a scheme of 15 units, residual values per hectare at the top end of
the market are in excess of £2 million even at 50% affordable housing (The
Coast and Swanage). Taking a CIL equivalent of say £10,000 per unit at this
density this reduces residual value by some £450,000 per hectare which,
whilst it is a significant reduction, does not we feel, make schemes
undeliverable.
3.18
These high residual values are maintained in the larger schemes. For a
scheme of 300 units (Table 3.3), residual values on a per Hectare basis are
close to £2 million. Again, this leaves significant ‘headroom’ for the imposition
of a robustly set and ambitious CIL.
3.19
In the middle sub markets, a lower affordable housing target will assist greatly
in the delivery of CIL. Taking again the 15 unit scheme, with relatively lower
land financing costs, residual value at 40% affordable housing is £2.11 million
in Purbeck Rural Fringe and £1.62 million in Wareham. These are strong
residual values and on greenfield sites will yield land owners extremely
generous returns even with high levels of affordable housing and CIL.
3.20
As may be expected, in the lower value areas, viability is not so strong
although as previously emphasised all will depend on existing use value and
some sites in lower value areas may prove more viable than those in high
values areas. Taking once more the 15 dwelling scheme, residual value is
now at under £500,000 per hectare in Upton at 40% affordable housing.
3.21
There should be no doubt that this is a robust figure, but a relatively high CIL
will make a significant dent in viability and hence the deliverability of sites.
3.22
This does not mean that a CIL should not be set. Previous analysis has
shown that at the lower end of the market, a 40% affordable housing target
may be too high in some instances. It means that the Council will, if setting a
CIL that is not differential across sub markets, take a flexible approach with
respect to affordable housing delivery.
Purbeck CIL and Development Viability Assessment – February 2013
Page 14
Table 3.3
Results of the viability testing – residual value £m per hectare
Purbeck CIL and Development Viability Assessment – February 2013
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Purbeck CIL and Development Viability Assessment – February 2013
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3.23
One issue for the Council when and if setting a CIL is whether this should be
differentiated by sub market areas. Some local authorities have done this,
although rather in isolation; the result has been over prescriptive policies on
relatively low impact issue (eg CIL) and under prescriptiveness on areas of
policy like affordable housing. There are a number of options emerge for
setting CIL for residential schemes.
In general the options are two
dimensional: to differentiate a CIL charge by location or sub market; or
second, to have a ‘single target’ approach reflecting a general CIL charge
across the District.
3.24
Several options are justifiable based on a CIL which discounts for the effects
of the affordable housing policy. One option is to set a CIL at a higher level
for the (two) higher value sub markets and. For the lower value sub markets,
a correspondingly lower figure.
3.25
Whether these options become significant will depend on the relative impact
of CIL. As previously discussed, should CIL reflect broadly the same level of
Section 106 package tested in the Affordable Housing Viability Study, then a
differentiated approach may prove over prescriptive.
Purbeck CIL and Development Viability Assessment – February 2013
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4
FURTHER POLICY TESTS: CIL VERSUS
HOUSING
AFFORDABLE
Introduction
4.1
In the previous chapter, the impact of a CIL charge was tested taking into
account the policy position of the Council with regards to affordable housing.
In this respect, the recommendations on the scale of CIL are made assuming
affordable housing to be a key priority.
4.2
Having run the calculations however, we feel that it may be helpful to show
how much CIL might be deliverable, were policy to be scaled back somewhat
to allow for a greater contribution for other infrastructure delivery.
4.3
This does not mean that the Council will look at this option (or options) in
reality. The analysis simply shows how much financial advantage might be
gained by scaling back affordable housing delivery from the target position
under several different circumstances.
4.4
Table 4.1 below shows the additional CIL which is available on a per market
unit basis should policy be scaled back at different levels.
4.5
The table shows that in The Coast sub market, for instance, if policy was
scaled back from 50% (the policy) to nil affordable housing provision, then, for
an 8 unit scheme, this would mean an additional £153,257 being available for
CIL. Likewise, as an another example in a lower value sub market, if policy in
say Wareham was scaled back from 40% (the policy) to a nil affordable
housing position, then an additional £82,800 per market unit would be
available for CIL.
Table 4.1
The Coast
Swanage
Additional CIL deliverable per market unit for an 8 unit
scheme
50% to 0% 50% to 20%
£153,257
£57,857
£141,943
£53,357
40% to 0%
Purbeck Rural Fringe
£96,686
Wareham
£82,800
Purbeck Rural Centre
£70,971
Upton
£62,743
4.6
40% to 20%
£30,214
£27,643
£22,179
£19,607
50% to 30% 50% to 40%
£49,592
£25,714
£40,776
£23,571
40% to 30%
£17,265
£15,796
£12,490
£11,388
As may be expected, the amount available for CIL decreases as the reduction
from the (affordable housing) policy reduces. Thus, for example, where say a
Purbeck CIL and Development Viability Assessment – February 2013
Page 18
40% to 30% reduction occurs, then a significantly lower amount is available
for CIL.
4.6
Table 4.2 shows a corresponding set of results for a scheme of 50 dwellings.
Table 4.2
The Coast
Swanage
Additional CIL deliverable per market unit for a 50 unit
scheme
50% to 0% 50% to 20%
£147,657
£55,554
£136,486
£51,304
40% to 0%
Purbeck Rural Fringe
£92,771
Wareham
£82,571
Purbeck Rural Centre
£67,029
Upton
£58,286
40% to 20%
£29,143
£25,804
£20,946
£18,214
50% to 30% 50% to 40%
£42,327
£24,690
£38,857
£22,667
40% to 30%
£16,653
£14,571
£11,796
£10,408
4.7
As previously, very significant sums would be available for CIL should the
affordable housing policy be relaxed. This is particularly the case in higher
value sub markets.
4.8
The table shows that almost £150,000 per market unit could, subject to
viability, go towards CIL should a scheme in The Coast sub market be
absolved of any affordable housing contribution (at the 50% target level)
4.9
Substantial contributions are available towards CIL (subject to viability) even
where a marginal relaxation in the affordable housing policy is envisaged. For
example, a 50% to 40% affordable housing reduction generates around
£25,000 per unit, which, subject to viability, could be delivered as CIL.
4.10
In the lower value sub markets and at Upton in particular, more significant
reductions in the affordable housing requirement would be needed in order to
generate any substantial level of CIL equivalent.
4.11
In setting out these figures, it is important to be clear that the analysis is
hypothetical, and that any planning decisions will need to take into account
the prioritisation of delivery and the contributions that might be required
across a range of infrastructure and affordable housing.
4.12
In doing so, the Council will need to be aware (as is shown in the analysis
above) that marginal deviances from the affordable housing policy in higher
value areas is likely to be an effective way in delivering CIL items. It follows
that in lower value sub markets, the opposite is true and that much more
significant affordable housing ‘sacrifices’ will be needed to deliver CIL type
contributions.
Purbeck CIL and Development Viability Assessment – February 2013
Page 19
Testing A housing needs approach
4.13
The Affordable Housing Viability Study and its Update worked with a tenure
mix of 75% Social Rent and 25% Intermediate Affordable housing.
4.14
In some locations a higher proportion of Social Rented housing may be
required. In table below we show the results (Residual Values per Hectare)
for a small to medium scheme of 8 units with assumptions as previously. This
shows, as may be expected, that viability is more challenging at higher
proportions of Social Rent.
4.15
However, viability still remains strong across the medium to high value sub
markets. Only at Upton, at 40% affordable housing does a CIL levy begin to
look challenging.
8 Units
30%
40%
50%
The Coast
Swanage
Purbeck Rural Fringe
Wareham
Purbeck Rural Centre
Upton
£2.92
£2.45
£1.88
£1.48
£0.86
£0.50
£2.30
£1.96
£1.39
£1.04
£0.50
£0.19
£1.68
£1.35
N/A
N/A
N/A
N/A
4.16
These conclusions will hold across the development outlined in Table 3.2
above as densities are similar across most schemes.
5
COMMERCIAL PROPERTY VIABILITY ANALYSIS
5.1
The CIL legislation requires that where a local authority decides to adopt a
CIL, it should be applied not only to residential property, but also to
commercial development. This development falls mainly under the Use
Classes Orders – Class A and Class B.
5.2
The assessment of viability with respect to commercial development is the
same in principle as for residential. That is say, the total scheme revenue
should be calculated and the costs of development taken off the revenue to
see if there is any residual which may then provide the basis for a Section 106
or CIL payment.
5.3
The precise sample of scheme types to test is always difficult to define to
ensure that a full picture of viability is gained. We requested further
information on this from attendees at the Viability Workshop (Appendix 1).
However this was not forthcoming.
Purbeck CIL and Development Viability Assessment – February 2013
Page 20
5.4
We have therefore utilised best local experience of the commercial property
market in the Purbeck area, where the inputs of Corbens have been critical.
5.5
These include A1 to A5 reflecting retail uses and which are shown in Table
5.1 on the following page.
5.6
Specific and further uses include A4 (Drinking Establishments) and a range of
B1 (Offices and Light Industry), B2 (General Industry) and B8 (Storage and
Distribution).
5.7
Table 5.1 includes a range of indicative rental values for all these uses along
with indicative yields. Both rental values and yields will vary on a site by site
basis.
5.8
As may be anticipated, rentals are highest and yields lowest for retail uses.
Rental values for retail are quoted in aggregate across the areas of the
property.
5.9
Rents for industrial and office uses are significantly lower. For industrial units
between £70 and £90 per square metre and for offices between £175 and
£275 per square metre.
5.10
Yields for industrial and offices range from 9% to 11%.
Purbeck CIL and Development Viability Assessment – February 2013
Page 21
Table 5.1
Typical commercial schemes in the Purbeck DC area
USE CLASS
A1 Use
A1 Use
A2 Use
A3:A4 and A5 Uses
B1 Use
B2 Use
B2 Use
B8 Use
B8 Use
D1 Use
D2 Use
LOCATION
High Street Shop
Superstore
Town Centre Offices
High Street Uses
Small Office
General Industrial - Large
factory
General Industrial - Small
factory
Large Warehouse
Small Warehouse
Health; Education; Religion
Assembly and Leisure
Purbeck CIL and Development Viability Assessment – February 2013
SIZE
250 sq m
5000 sq m
500 sq m
500 sq m
1000 sq m
RENTAL VALUE
(£ psm)
275
250
275
300
175
INITIAL YIELD
9
8
11
10
9
5000 sq m
70
11
500 sq m
5000 sq m
500 sq m
500 sq m
50 sq m
90
75
90
102
100
11
11
11
10
10
Page 22
5.11
The costs of development have been taken from the BCIS (Building Cost
Information Services). This source of information shows base build costs for
a variety of commercial development types.
5.12
We have taken the following costs as per BCIS categories:
Retail - Shops Generally – at £795 per square metre
A4 – Public Houses – at £1,545 per square metre
B1 – B8 – at £665 to £710 per square metre depending on unit size.
5.13
The appraisals for the commercial development are set out in full in Appendix
3. The Appendix shows the baseline spreadsheet we have used and the key
assumptions made.
5.14
Table 5.2 shows the results of the analysis in summary form. The overall
conclusion is a lack of viability for most types of commercial development.
Residual values are negative in most instances, but in particular for industrial
B1 and Warehouse B8 type uses. A significant improvement in viability will be
needed if this type of development is to yield a CIL contribution. This could be
achieved in a number of ways including improved capital values, reduced
development costs or a combination of the two.
5.15
The figures do not necessarily suggest that development will not go ahead.
The build costs we have adopted are general and in some instances it may be
anticipated that costs are lower; or indeed that the capital value or revenue is
higher. But what the figures do suggest is that there is very little headroom, if
any, for Section 106 or CIL type contributions in so far as most uses are
concerned.
5.16
The only exceptions to the general picture are retail, town centre offices and
some High Street Uses encompassing A3: A4 and A5 which would appear to
generate a positive residual value.
5.17
Retail uses would appear to generate a residual value of some £1,500 per
square metre. Town Centre Offices, a residual value of some £350 per
square metre and A3, A4 and A5 Uses, some £400 per square metre.
Purbeck CIL and Development Viability Assessment – February 2013
Page 23
Table 5.2
Results of the commercial property analysis
Use Class
A1 Use
A1 Use
A2 Use
A3:A4 and A5 Uses
B1 Use
B2 Use
B2 Use
B8 Use
B8 Use
D1 Use
D2 Use
5.18
Location
High Street Shop
Superstore
Town Centre Offices
High Street Uses
Small Office
General Industrial - Large
factory
General Industrial - Small
factory
Large Warehouse
Small Warehouse
Health; Education; Religion
Assembly and Leisure
Total
Revenue
£763,889
£15,625,000
£1,250,000
£1,500,000
£1,944,444
Total Cost
£399,565
£4,571,250
£1,072,838
£1,303,283
£2,051,232
Residual Value
£364,324
£7,574,675
£177,162
£196,718
-£106,787
£3,181,818
£5,365,044
-£2,183,226
£409,091
3,409,091
£409,091
£510,000
£50,000
£520,748
£5,396,895
£519,391
£900,900
£89,920
-£111,657
-£1,987,805
-£110,300
-£390,900
-£39,920
These figures (Paragraph 5.17) provide the starting point for setting CIL. The figures show that there is some positive residual
value from which a CIL might be taken.
Purbeck CIL and Development Viability Assessment – February 2013
Page 24
Purbeck CIL and Development Viability Assessment – February 2013
Page 25
6
MAIN FINDINGS AND CONCLUSIONS
6.1
Our analysis of viability for the purposes of setting a CIL covers a range of
development types across a range of housing sub markets. The approach to
the housing sub market analysis is consistent with that used for the Affordable
Housing Viability Study (AHVS).
6.2
That analysis identified six sub market areas within Purbeck DC. These
include The Coast, Swanage, Purbeck Rural Fringe, Wareham, Purbeck Rural
Centre and Upton. These sub markets are critical to understanding viability
across the District.
6.3
The analysis of viability for this study has taken account of the Council’s
adopted policy on affordable housing which states that 50% will be sought in
The Coast and Swanage, and 40% elsewhere.
Affordable housing
contributions are required on schemes of two dwellings or more. In carrying
out the analysis we have assumed the delivery of affordable housing to be a
very high Council priority. However, recognising that schemes will often need
to deliver more than just affordable housing, we have carried out some ‘trade
off’ analysis (Chapter 4) showing the potential contribution to be made to CIL,
should the affordable housing policy be relaxed to various degrees.
6.4
The analysis of commercial schemes looked at a range of development types
across the District. As is required by the CIL legislation, the full range from
retail, through offices and industrial was analysed. A similar (residual value)
approach was adopted for the commercial property as for the residential.
6.5
The study has been carried out in line with the expectations of the CIL
guidance. The findings reflect the realities of the residential and commercial
property markets in Purbeck.
Key findings
6.6
Generally, viability is strong across the residential sector in Purbeck. Residual
values remain high, as in 2010 and 2008 when the previous analyses were
carried out. On the face of the evidence, a 40% and 50% affordable housing
target looks justifiable, although it should be recognised that at 40% affordable
housing in Upton residual values (at around £300,000 per hectare) may not be
sufficient on some brown field sites where existing use values are higher.
6.7
In the commercial sector, the picture of viability is more mixed. Generally,
industrial and warehouse development appears quite marginal, if not unviable.
However, retail uses and some forms of offices (notably Town Centre types)
generate a positive residual value. These uses may provide the potential to
deliver a CIL.
Residential development
6.8
The analysis in Chapter 3, which looked at the economics of residential
development, showed two main theoretical options: to set a CIL charge by
reference to sub markets, or, second, to set a CIL which is applied evenly
across the District.
Purbeck CIL and Development Viability Assessment – February 2013
Page 26
6.9
Given the fact that this analysis, and that of 2008 and 2010 found that viability
varied significantly across the District, it makes sense to vary planning
obligations accordingly. In this respect, the affordable housing policy position
reflects some variance in the local housing market across the Purbeck DC
area.
6.10 The question is then about the extent to which a CIL charge might vary around
the affordable housing policy. At the top end of the market, in the 50%
affordable housing target band, residual values are robust and high and we
therefore think that CIL can be correspondingly robustly set.
6.11 The Levy on residential for the early authorities charging CIL varied from £70
per square metre to £575 per square metre (the higher charge being set in
higher value Wandsworth). Portsmouth appeared to set a single charge of
£105 per square metre. This charge, at say £100 per square metre would, on
the average new unit require developers to pay around £8,000 per unit; or an
equivalent of around £240,000 per hectare for a 30 dph scheme.
6.12 Given that CIL is chargeable on market units, this would reduce (at a 50%
affordable housing contribution) to £120,000. Given the very high residual
values at the top end of the market, this is a relatively minor impact and on this
basis the CIL charge could be set more ambitiously.
6.13 At the lower end, more care is needed given that CIL is first in line as a hit on
development. In Upton for example, residual values are around £300,000 per
hectare at 40% affordable housing (which is policy). At 30 dph, the hit across
the scheme will be £144,000 (30 units at 60% market units at say £8,000 per
unit). This would mean a halving in residual value at a CIL of £100 per square
metre.
6.14 This is probably an unacceptable hit and therefore too high. In the next lowest
value market, Purbeck Rural Centre, residual values at 40% affordable
housing are significantly higher, at around £700,000 per hectare. We think
that this value is more robust but may not be significant enough to deliver sites
at a high level of CIL
6.15 Returning to the case of Upton, the question is whether a CIL should be
charged at all. Given that a significant volume of development may be located
there, it is prudent to have a CIL charge. In doing so however, we suggest
that the Council are prepared to maintain a very flexible approach to
affordable housing delivery, descending in many cases towards perhaps a
30% or even 20% negotiated solution.
6.16 In terms of setting the CIL we suggest the following figures:
For the Coast and Swanage
£180 per square metre
For Purbeck Rural Fringe and Wareham
£100 per square metre
For Purbeck Rural Centre and Upton
£40 per square metre
6.17 These figures are based broadly on the planning gain package, tested and
found to be viable in previous viability reports for the Council, and also on
what we believe to be charges that are reasonable given net residual values.
Purbeck CIL and Development Viability Assessment – February 2013
Page 27
6.18 We note that the most recent estimate of housing needs suggests a 90%:10%
Social Rent:Intermediate Affordable housing split. We think that if this split is
adopted, then the CIL rates above remain robust with the exception of Upton
where the CIL suggested above will hold only at around 30% affordable
housing.
6.19 The Council will of course recognise that a higher CIL may be achievable
should the affordable housing policy be reviewed.
Commercial development
6.20 The options relating to commercial developments with respect to CIL are
somewhat easier to frame.
6.21 For all the B1, B2, B8, D1 and D2 Uses, the analysis suggests that
commercial schemes of this nature are either non viable or marginally viable.
Although inevitably there will be hot spots and developments with positive
residual values, in the grand scheme of things, these schemes will generally
not yield a CIL contribution. We therefore suggest that these uses are
exempted from CIL.
6.22 Retail Uses generate a residual equivalent value of around £1500 per square
metre. If 5% of this figure (not by any means a standard assumption) is taken
as a CIL, then a charge of £75 is made. This is, we believe, not inconsistent
with other local authority CIL charges for retail uses.
6.23 On a similar basis, we believe that a charge of around £20 per square metre
may be levied on Town Centre Offices. However, given potential difficulties in
defining location here, and the fact that other B1 Offices appear unviable, it
may be prudent to also exempt offices from a CIL.
6.24 This would mean that a CIL charge would be placed on residential and retail
only; as set out above.
Final comments
6.25
As with all CIL viability studies, the setting of the levy is not a precise science.
The Council will need to taken into consideration practical issues such as the
relative returns from the imposition of the levy.
6.26
The Council may also wish to consider in particular the analysis in Chapter 4
which shows the additional headroom for a CIL contribution where the
affordable housing policy might be relaxed. In many locations, this may not
make a significant difference, but in higher value sub markets this is not the
case.
Purbeck CIL and Development Viability Assessment – February 2013
Page 28
Appendix 1
PURBECK DC COMMUNITY INFRASTRUCTURE LEVY VIABILITY STUDY –
WORKSHOP NOTES
1
Introduction
A workshop was held on the afternoon of Friday 27th January 2012 at the Council
Offices. Representatives of the housing and property industry, landowners were in
attendance, as listed below:
Three Dragons Consultants
AMB Developments
Bloxworth Land Agent
Wyatt Homes
Bloor Homes
Bespoke Property Group
Planning Bureau
National Trust
Symonds and Sampson
Corbens Estate Agent
Humphries Kirk Solicitors
Terence O’Rourke Ltd
Chichesters Land Agents
Goadsby
Rolfe Judd
Savills
Dorset County Council
Purbeck District Council
Chairing the meeting:
Andrew Golland
Three Dragons
John Corben
Corbens
Three Dragons and Purbeck DC would like to thank all those in attendance for their
inputs to the study.
At the workshop Three Dragons gave a presentation summarising the methodology
and outlining the process of testing which would be carried out to determine viability
where CIL might be applied.
Purbeck CIL and Development Viability Assessment – February 2013
Page 29
It was agreed that the Powerpoint presentation (attached) would be made available
to all Workshop participants in conjunction with these meeting notes.
2
Study overview
Steve Dring introduced the study context. It was explained that the Core Strategy
was in the process of being submitted and that examination will follow. The CIL
Viability Study will require separate examination.
Three Dragons and Corben have been commissioned to carry out a Community
Infrastructure Levy (CIL) Viability Study in accordance with the CIL regulations.
It was explained that in setting a CIL, a local authority should balance the charge it
decides to levy with the potential impacts on the viability of new development.
3
Initial discussion on the CIL regulatory framework
An initial discussion on the process and framework highlighted that:
CIL can be applied to all types of development- across residential and commercial
uses;
Local authorities (the pilot ones) are employing a range of approach with some
levying a single charge and others varying the charge across and (in some
instances) within a single development type;
CIL is chargeable on a per square metre basis. It was pointed out that the Purbeck
DC Affordable Housing Viability Study had tested viability assuming a planning gain
total package of £8,000 per unit;
Affordable housing is exempt from CIL, as are certain other uses; e.g. charity
developments;
CIL is but one source of funding by which a local authority might meet its
infrastructure requirements.
A question was raised about the basis for a CIL charge and whether would be on
gross or a net basis.
4
Key issues
4.1
Basis for interpreting viability
There was no objection to the general approach adopted for assessing viability
proposed by Three Dragons. This measures viability by reference to residual
scheme value less the existing or alternative use value of a site.
Purbeck CIL and Development Viability Assessment – February 2013
Page 30
The challenge in assessing a reasonable land owner return was recognised. A
figure of 20% to 30% above existing use value was suggested but this would relate
mostly to brown field sites.
It was stated by one delegate that landowners, with greenfield sites particularly, are
going to need much more than 20% to make it worthwhile upsetting the local
community who are also their neighbours.
Another issue is capital gains tax, which would need to be taken into account, more
so, if a long-term landowner is involved. Each person is likely to want a bit more
than the last deal locally. The difference between land values and residual values
need to be acknowledged.
One delegate said that he had been talking to landowners about mixing a small
proportion (about 20%) of market housing into exception sites which would be
permissible under the draft National Planning Policy Framework.
It was emphasised by Three Dragons that the study will need to be robust for the
Plan period. In this respect it will be important to look at the viability of sites in the
current market – against the context of the longer run.
One delegate stated CIL can’t be applied to extant planning consents, as affordable
housing would get squeezed, particularly on sites with high AUV/EUV and asked if
permission expired whether AUV or EUV was the best measure of viability.
4.2
Overall methodology
Three Dragons explained that the approach to the study will be two stage with the
first stage focusing on testing residential schemes and the second, commercial,
across a range of use class orders.
The residential testing will focus on typical schemes, developed across the same
range of sub markets adopted in the Affordable Housing Viability Study (AHVS).
There will therefore be consistency of approach with the AHVS.
The full testing framework is set out in the Powerpoint Presentation. Consultees are
requested to comment on this as an appropriate and comprehensive framework.
The commercial testing framework was also discussed. This is also set out in full in
the Powerpoint presentation which accompanies this note. Please can consultees
comment on the assumptions made on types of units to be tested.
Data sources (e.g. HMLR for house prices and BCIS for build costs) were explained
to participants. The need for best primary data sources based on a large sample
was understood and agreed.
4.3
House Prices
Purbeck CIL and Development Viability Assessment – February 2013
Page 31
The indicative new build prices were shown to delegates. Feedback included:
Coastal prices depend upon a sea view, and can increase sales values by up to
50%;
It was queried whether CIL should be differentiated on house price grounds.
4.4
Land values
Delegates were asked about their perceptions of land values in Purbeck. People
were generally not forthcoming on this point.
It will be very helpful if full feedback on this point is received.
It was suggested by one delegate that the model assumes that landowner is
distressed seller but may not be.
4.5
Density and development mix - housing
The residential testing framework shows a range of densities – from 28 dph to 45
dph.
Consultees are asked to comment on the relevant Powerpoint slide.
It was suggested that flats were not being tested. It could be helpful to include these
in some of the larger sites.
4.6
Development costs
Residential
Three Dragons presented the proposed page that will be used for the testing
framework. This is included in the Powerpoint presentation. It was explained that
the base build costs per square metre will be calculated from the BCIS data source.
Delegates were asked for their responses on these costs.
There was some discussion on reasonable developer profit margins. The need for
consistency between the assumptions used for policy making and those used by the
Council in site specific negotiations was emphasised. One delegate stated that
17.5% margin had recently been accepted at appeal.
There were no general comments on the other developer costs, although one
delegate stated that he was being lent development finance at a rate in excess of
7%.
Commercial
Discussion on the commercial development viability issues was led by John Corben.
The following were the key points from the discussion:
Purbeck CIL and Development Viability Assessment – February 2013
Page 32
Pension scheme investors are buying property to let in Purbeck;
Small units letting well at the right price in Swanage – optimistic entrepreneurs;
Commercial units at £300 per sq m ITZA. For more secondary locations - £200 to
£250 per sq m.
Swanage has higher demand than Wareham because of holiday demand;
Wareham rents lower but good demand in town centre;
Office yields at 10% - at best YP at 12.5.
Commercial extremely difficult and doesn’t anticipate changes in short term;
reduction in residential values of up to 8% are likely;
A
B1-B8 in independent locations were missing from scenario testing framework.
Consultees are requested to feed back on the commercial testing framework table in
the Powerpoint presentation.
Likewise proposed costs to be used for the viability analysis are set out in the
Powerpoint presentation for further feedback.
4.7
Affordable housing issues
Delegates were asked to provide information which will help with the affordable
housing revenue assumptions, particularly with respect to Intermediate tenures.
An important question that was raised in relation to the viability testing process is
whether Intermediate Affordable housing will attract a CIL contribution. The
regulations would appear to focus on ‘Social Housing’.
4.8
Other points
JS raised the viability of agricultural workers dwellings, commenting that as they
weren’t for sale there would be a cost implication;
RS showed interest as it would be a way of growing an estate. He is already
working with registered provider of affordable housing in East Devon;
DW asked if C2 class retirement and extra care housing were being looked at and
explained that their rate of sale varies and because they are specialist they often
have extra costs involved;
MM asked if there would be an opportunity for new homes bonus to contribute to
CIL. SD informed the group that the new homes bonus was much less than the
recent cut in government grant and the council’s focus is on maintaining services;
AL asked in utility companies would be in receipt of CIL funding. SD explained that
where appropriate they might be;
Purbeck CIL and Development Viability Assessment – February 2013
Page 33
SB responded to a query about tracking expenditure. CIL regulations require local
authorities to publish income and expenditure at least annually on their website.
Consideration is being given to whether this might be made available in ‘real time’.
5
Next steps
These notes and the associated Powerpoint are an important milestone in the
project.
Consulteees are requested to feed back as fully as possible and with particular
reference to the commercial aspects of CIL.
It is emphasised that this study has important implications for the delivery of both
residential and commercial property development.
We thus look forward to your comments.
THANK YOU AGAIN FOR ATTENDING AND WE LOOK FORWARD TO YOUR
FEEDBACK
Comments please to:
Andrew Golland
drajg@btopenworld.com
Purbeck CIL and Development Viability Assessment – February 2013
Page 34
Appendix 2 Three Dragons model: Method statement
The Toolkit provides the user with an assessment of the economics of residential
development. It allows the user to test the economic implications of different types
and amounts of planning obligation and, in particular, the amount and mix of
affordable housing. It uses a residual development appraisal approach which is the
industry accepted approach in valuation practice.
The Toolkit compares the potential revenue from a site with the potential costs of
development before a payment for land is made. In estimating the potential revenue,
the income from selling dwellings in the market and the income from producing
specific forms of affordable housing are considered. The estimates involve (1)
assumptions about how the development process and the subsidy system operate
and (2) assumptions about the values for specific inputs such as house prices and
building costs. These assumptions are made explicit in the guidance notes. If the
user has reason to believe that reality in specific cases differs from the assumptions
used, the user may either take account of this in interpreting the results or may use
different assumptions.
The main output of the Toolkit is the residual value. In practice, as shown in the
diagram below, there is a ‘gross’ residual value and a ‘net’ residual value. The gross
residual value is that value that a scheme generates before Section 106 is required.
Once Section 106 contributions have been taken into account, the scheme then has
a net residual value, which is effectively the land owner’s interest.
Purbeck CIL and Development Viability Assessment – February 2013
Page 35
Appendix 3 Commercial property appraisals
A1 High Street Shop
Revenue
Unit Size (Square Metres)
250
Rental Value (£ per Sq M)
£275
Initial Yield
9
Total Rental
£68,750
Years Purchase (YP)
11.11
Capital Value
£763,889
Costs
Construction
Unit Size (Square Metres)
Base Cost per Sq Metre
Externals and Infrastructure
250
At 15% Base Construction
Construction costs (sub total)
£914
Total Construction Costs
Professional Fees
Overheads
Finance
Marketing Fees
Developer return
£795
£119
£228,563
At 6% Base Construction
At 5% Base Construction
At 7% Base Construction
At 2% of Capital Value
At 15% Capital Value
£13,714
£11,428
£15,999
£15,278
£114,583
Other Development Costs (Total)
£171,002
Total Development Costs
£399,565
Residual Value (Total Rev less Total Cost)
£364,324
Purbeck CIL and Development Viability Assessment – February 2013
Page 36
Superstore
Revenue
Unit Size (Square Metres)
5000
Rental Value (£ per Sq M)
£250
Initial Yield
8
Total Rental
£1,250,000
Years Purchase (YP)
12.50
Capital Value
£15,625,000
Costs
Construction
Unit Size (Square Metres)
5000
Base Cost per Sq Metre
£795
Externals and Infrastructure
At 15% Base
Construction
£119
Construction costs (sub total)
£914
Total Construction Costs
£4,571,250
Professional Fees
Overheads
Finance
Marketing Fees
Developer return
At 6% Base Construction
At 5% Base Construction
At 7% Base Construction
At 2% of Capital Value
At 15% Capital Value
£274,275
£228,563
£319,988
£312,500
£2,343,750
Other Development Costs (Total)
£3,479,075
Total Development Costs
£8,050,325
Residual Value (Total Rev less Total Cost)
£7,574,675
Purbeck CIL and Development Viability Assessment – February 2013
Page 37
Town Centre Offices A2
Revenue
Unit Size (Square Metres)
500
Rental Value (£ per Sq M)
£275
Initial Yield
11
Total Rental
£137,500
Years Purchase (YP)
9.09
Capital Value
£1,250,000
Costs
Construction
Unit Size (Square Metres)
Base Cost per Sq Metre
Externals and Infrastructure
500
At 15% Base Construction
Construction costs (sub total)
£1,458
Total Construction Costs
Professional Fees
Overheads
Finance
Marketing Fees
Developer return
£1,268
£190
£729,100
At 6% Base Construction
At 5% Base Construction
At 7% Base Construction
At 2% of Capital Value
At 15% Capital Value
Other Development Costs (Total)
Total Development Costs
Residual Value (Total Rev less Total Cost)
Purbeck CIL and Development Viability Assessment – February 2013
£43,746
£36,455
£51,037
£25,000
£187,500
£343,738
£1,072,838
£177,162
Page 38
A3, A4 and A5 Uses
Revenue
Unit Size (Square Metres)
500
Rental Value (£ per Sq M)
£300
Initial Yield
10
Total Rental
£150,000
Years Purchase (YP)
10.00
Capital Value
£1,500,000
Costs
Construction
Unit Size (Square Metres)
Base Cost per Sq Metre
Externals and Infrastructure
500
At 15% Base Construction
Construction costs (sub total)
£1,777
Total Construction Costs
Professional Fees
Overheads
Finance
Marketing Fees
Developer return
£1,545
£232
£888,375
At 6% Base Construction
At 5% Base Construction
At 7% Base Construction
At 2% of Capital Value
At 15% Capital Value
Other Development Costs (Total)
Total Development Costs
Residual Value (Total Rev less Total Cost)
Purbeck CIL and Development Viability Assessment – February 2013
£53,303
£44,419
£62,186
£30,000
£225,000
£414,908
£1,303,283
£196,718
Page 39
Small Office B1
Revenue
Unit Size (Square Metres)
1000
Rental Value (£ per Sq M)
£175
Initial Yield
9
Total Rental
£175,000
Years Purchase (YP)
11.11
Capital Value
£1,944,444
Costs
Construction
Unit Size (Square Metres)
Base Cost per Sq Metre
Externals and Infrastructure
1000
At 15% Base Construction
Construction costs (sub total)
£1,458
Total Construction Costs
Professional Fees
Overheads
Finance
Marketing Fees
Developer return
£1,268
£190
£1,458,200
At 6% Base Construction
At 5% Base Construction
At 7% Base Construction
At 2% of Capital Value
At 15% Capital Value
Other Development Costs (Total)
Total Development Costs
Residual Value (Total Rev less Total Cost)
Purbeck CIL and Development Viability Assessment – February 2013
£87,492
£72,910
£102,074
£38,889
£291,667
£593,032
£2,051,232
-£106,787
Page 40
B2 Use – Large Industrial
Revenue
Unit Size (Square Metres)
5000
Rental Value (£ per Sq M)
£70
Initial Yield
11
Total Rental
£350,000
Years Purchase (YP)
9.09
Capital Value
£3,181,818
Costs
Construction
Unit Size (Square Metres)
5000
Base Cost per Sq Metre
Externals and Infrastructure
£711
£107
At 15% Base Construction
Construction costs (sub total)
£818
Total Construction Costs
Professional Fees
Overheads
Finance
Marketing Fees
Developer return
£4,088,250
At 6% Base Construction
At 5% Base Construction
At 7% Base Construction
At 2% of Capital Value
At 15% Capital Value
£245,295
£204,413
£286,178
£63,636
£477,273
Other Development Costs (Total)
£1,276,794
Total Development Costs
£5,365,044
Residual Value (Total Rev less Total Cost)
Purbeck CIL and Development Viability Assessment – February 2013
-£2,183,226
Page 41
B2 Use – Small Industrial
Revenue
Unit Size (Square Metres)
500
Rental Value (£ per Sq M)
£90
Initial Yield
11
Total Rental
£45,000
Years Purchase (YP)
9.09
Capital Value
£409,091
Costs
Construction
Unit Size (Square Metres)
Base Cost per Sq Metre
Externals and Infrastructure
500
At 15% Base Construction
Construction costs (sub total)
£765
Total Construction Costs
Professional Fees
Overheads
Finance
Marketing Fees
Developer return
£665
£100
£382,375
At 6% Base Construction
At 5% Base Construction
At 7% Base Construction
At 2% of Capital Value
At 15% Capital Value
£22,943
£19,119
£26,766
£8,182
£61,364
Other Development Costs (Total)
£138,373
Total Development Costs
£520,748
Residual Value (Total Rev less Total Cost)
Purbeck CIL and Development Viability Assessment – February 2013
-£111,657
Page 42
B8 Use – Large Warehouse
Revenue
Unit Size (Square Metres)
5000
Rental Value (£ per Sq M)
£75
Initial Yield
11
Total Rental
£375,000
Years Purchase (YP)
9.09
Capital Value
£3,409,091
Costs
Construction
Unit Size (Square Metres)
5000
Base Cost per Sq Metre
Externals and Infrastructure
£710
£107
At 15% Base Construction
Construction costs (sub total)
£817
Total Construction Costs
Professional Fees
Overheads
Finance
Marketing Fees
Developer return
£4,082,500
At 6% Base Construction
At 5% Base Construction
At 7% Base Construction
At 2% of Capital Value
At 15% Capital Value
£244,950
£204,125
£285,775
£68,182
£511,364
Other Development Costs (Total)
£1,314,395
Total Development Costs
£5,396,895
Residual Value (Total Rev less Total Cost)
Purbeck CIL and Development Viability Assessment – February 2013
-£1,987,805
Page 43
B8 Use – Small Warehouse
Revenue
Unit Size (Square Metres)
500
Rental Value (£ per Sq M)
£90
Initial Yield
11
Total Rental
£45,000
Years Purchase (YP)
9.09
Capital Value
£409,091
Costs
Construction
Unit Size (Square Metres)
Base Cost per Sq Metre
Externals and Infrastructure
500
At 15% Base Construction
Construction costs (sub total)
£762
Total Construction Costs
Professional Fees
Overheads
Finance
Marketing Fees
Developer return
£663
£99
£381,225
At 6% Base Construction
At 5% Base Construction
At 7% Base Construction
At 2% of Capital Value
At 15% Capital Value
£22,874
£19,061
£26,686
£8,182
£61,364
Other Development Costs (Total)
£138,166
Total Development Costs
£519,391
Residual Value (Total Rev less Total Cost)
Purbeck CIL and Development Viability Assessment – February 2013
-£110,300
Page 44
D1 Use
Revenue
Unit Size (Square Metres)
500
Rental Value (£ per Sq M)
£102
Initial Yield
10
Total Rental
£51,000
Years Purchase (YP)
10.00
Capital Value
£510,000
Costs
Construction
Unit Size (Square Metres)
Base Cost per Sq Metre
Externals and Infrastructure
500
At 15% Base Construction
Construction costs (sub total)
£1,380
Total Construction Costs
Professional Fees
Overheads
Finance
Marketing Fees
Developer return
£1,200
£180
£690,000
At 6% Base Construction
At 5% Base Construction
At 7% Base Construction
At 2% of Capital Value
At 15% Capital Value
£41,400
£34,500
£48,300
£10,200
£76,500
Other Development Costs (Total)
£210,900
Total Development Costs
£900,900
Residual Value (Total Rev less Total Cost)
Purbeck CIL and Development Viability Assessment – February 2013
-£390,900
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D2 Use
Revenue
Unit Size (Square Metres)
50
Rental Value (£ per Sq M)
£100
Initial Yield
10
Total Rental
£5,000
Years Purchase (YP)
10.00
Capital Value
£50,000
Costs
Construction
Unit Size (Square Metres)
Base Cost per Sq Metre
Externals and Infrastructure
50
At 15% Base Construction
Construction costs (sub total)
£1,380
Total Construction Costs
Professional Fees
Overheads
Finance
Marketing Fees
Developer return
£1,200
£180
£69,000
At 6% Base Construction
At 5% Base Construction
At 7% Base Construction
At 2% of Capital Value
At 15% Capital Value
£4,140
£3,450
£4,830
£1,000
£7,500
Other Development Costs (Total)
£20,920
Total Development Costs
£89,920
Residual Value (Total Rev less Total Cost)
Purbeck CIL and Development Viability Assessment – February 2013
-£39,920
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Appendix 4
Worked example: 8 Dwellings
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GLOSSARY OF TERMS
A
Abnormal Development Costs: Costs associated with difficult ground conditions eg
contamination.
Affordable Housing: As defined in PPS3 as housing that includes Social Rented and
Intermediate Affordable housing.
Affordable Rented Housing: Housing let at above Social Rented levels and up to
80% of Open Market Rent
Appraisal: development calculation taking into account scheme revenue and scheme
cost and accounting for key variables such as house prices, development costs and
developer profit.
B
Base Build Costs: including costs of construction: preliminaries, sub and
superstructure; plus an allowance for external works.
C
Commuted Sum: a sum of money paid by the applicant in lieu of providing affordable
housing on site.
Community Infrastructure Levy: A levy raised by local authorities from developers
and land owners in order to cover the costs of providing infrastructure, where the
form of provision can include physical, social and environmental infrastructure. The
levy is charged on a per square metre basis across a range of development uses.
D
Developer’s Profit or margin: a sum of money required by a developer to undertake
the scheme in question. Profit or margin can be based on cost, development value;
and be expressed in terms of net or gross level.
Developer Cost: all encompassing term including base build costs (see above) plus
any additional costs incurred such as fees, finance and developer margin.
Development Economics: The assessment of key variables included within a
development appraisal; principally items such as house prices, build costs and
affordable housing revenue.
E
Existing Use Value (EUV): The value of a site in its current use; for example,
farmland, industrial or commercial land.
F
Finance (developer): usually considered in two ways. Finance on the building
process; and finance on the land. Relates to current market circumstances
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G
Gross Development Value (GDV): the total revenue from the scheme. This may
include housing as well as commercial revenue (in a mixed use scheme). It should
include revenue from the sale of open market housing as well as the value of
affordable units reflected in any payment by a housing association(s) to the
developer.
I
Intermediate Affordable Housing: PPS3 Housing defines intermediate affordable
housing as housing at prices and rents above those of social rent, but below market
price or rents, and which meet the criteria set out above. These can include shared
equity products (e.g. HomeBuy), other low cost homes for sale and intermediate
rent.
L
Land Value: the actual amount paid for land taking into account the competition for
sites. It should be distinguished from Residual Value (RV) which is the figure that
indicates how much should be paid for a site.
Local Development Framework (LDF): a folder of planning documents
encompassing DPDs (Development Plan Documents) and SPDs (Supplementary
Planning Documents)
M
Market Housing: residential units sold into the open market at full market price to
owner occupiers, and in some instances, property investors. Usually financed
through a mortgage or through cash purchase in less frequent cases.
P
Planning Obligation: a contribution, either in kind or in financial terms which is
necessary to mitigate the impacts of the proposed development. Affordable housing
is a planning obligation as are, for example, education and open space contributions.
(See Section 106)
Proportion or percentage of Affordable Housing: the proportion of the scheme given
over to affordable housing. This can be expressed in terms of units, habitable rooms
or floorspace
R
Residual Valuation: a key valuation approach to assessing how much should be paid
for a site. The process relies on the deduction of development costs from
development value. The difference is the resulting ‘residue’
Residual Value (RV): the difference between Gross Development Value (GDV) and
total scheme costs. Residual value provides an indication to the developer and/or
land owner of what should be paid for a site. Should not be confused with land value
(see above)
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Registered Provider (RP): a housing association or a not for profit company
registered with the Homes and Communities Agency and which provides affordable
housing
S
Scheme: development proposed to be built. Can include a range of uses – housing,
commercial or community, etc
Section 106 (of the Town and Country Planning Act 1990): This is a legally binding
agreement between the parties to a development; typically the developer, housing
association, local authority and/or land owner. The agreement runs with the land and
bids subsequent purchasers. (See Planning Obligation)
Shared Ownership (SO): Also known as a product as ‘New Build HomeBuy’. From a
developer or land owner’s perspective SO provides two revenue streams: to the
housing association as a fixed purchase sum on part of the value of the unit; and on
the rental stream. Rent charged on the rental element is normally lower than the
prevailing interest rate, making this product more affordable than home ownership.
Social Rented Housing (SR): Rented housing owned and managed by local
authorities and registered social landlords, for which guideline target rents are SET
through the national rent regime.
Sub Markets: Areas defined in the Viability Study by reference to house price
differentials. Areas defined by reference to postcode sectors, or amalgams thereof.
Supplementary Planning Document (SPD): planning documents that provide specific
policy guidance on e.g. affordable housing, open space, planning obligations
generally. These documents expand policies typically set out in Local Plans and
LDFs.
T
Target: Affordable housing target. Sets the requirement for the affordable housing
contribution. If say 30% on a scheme of 100 units, 30 must be affordable (if viable).
Tenure Mix: development schemes usually comprise a range of housing tenures.
These are described above including market and affordable housing.
Threshold: the trigger point which activates an affordable housing contribution. If a
threshold is set at say 15 units, then no contribution is payable with a scheme of 14,
but is payable with a scheme of 15. The appropriate affordable housing target is then
applied at the 15 units, e.g. 20%, or 30%.
V
Viability: financial variable that determines whether a scheme progresses or not. For
a scheme to be viable, there must be a reasonable developer and land owner return.
Scale of land owner return depends on the planning process itself.
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