Appendix 2 – Scheme Viability
In simple terms the viability of a scheme is based on the relationship between
revenue and costs as shown in the diagram below.
Revenues




Affordable housing
(HCA Grant)
Private sale income
Commercial sales
Affordable housing
(RSL contribution)
less
Costs








Land
Build
Infrastructure
Private sale margin
Sales & marketing
Professional fees
S106
Finance
=
Viability Outcome
Viable / Not viable
Variations in each component will produce a different viability outcome, not
just from site to site but also depending on the housing mix and tenure mix on
each site. For example, if the proportion of affordable housing increased, the
level of grant from the HCA and RSL contributions will increase in line with
their contributions, but this will be countered by a fall in the number of market
units available for sale. Consequently, in viability terms, affordable housing is
more expensive to the developer than market housing.
The financial security of a scheme will also depend on risk - different
elements of the project will incur greater risk than others – and cash flow,
which is particularly important for larger schemes as it determines both a
significant input (finance costs) and a key output measure (return on the
capital employed). Costs for a typical project are front loaded with a time gap
between costs (land, infrastructure and building works) and income (dwelling
sales). Finally, there can be significant changes in costs throughout the
lifetime of a scheme (slump in house prices, increased infrastructure costs
etc). Site location and potential housing mix, or potential for mixed use
development will ultimately influence the value of the land.
A study on the Economics of Affordable Housing undertaken for Surrey
County Council by Knight Frank examines the issue of viability and the effect
of affordable housing quotas on the financial soundness of a scheme. The
study confirmed that an increase in affordable housing requirement reduces
scheme viability, and, the reduction in viability is more pronounced with the
removal (or reduction) of grant aid. Broadly speaking, this is the position the
council is likely to face in future.
Appendix 3 – Summary of council procedures relating to the disposal of
council owned land
Over-riding Procedure Principles
Statutory Requirements:
1.
There is an overriding duty on the Council, when disposing of land, set
out under section 123 of the Local Government Act 1972, which is – “to
obtain the best consideration that can be reasonably obtained”.
2.
This duty is subject to certain exceptions –
a. The Council can dispose of sites at an under value of up to £2m in
the interests of social, economic and environmental well-being of
the community under “the General Disposal Consent (England
2003)”
b. If the Council wishes to dispose of land for a greater under value
the formal consent of the Secretary of State is required.
Council Procedure Principles:
3.
Land will not normally be disposed of at less than the best
consideration that can reasonably be obtained. The Council will
however consider the contribution of a disposal to the furtherance of
Council priorities or the promotion or improvement of the economic,
social or environmental wellbeing of the area. Therefore land may be
disposed of at less than best consideration when the transaction is
covered by one of the exceptions in the General Disposal Consent or
has approval of the Secretary of State.
4.
No disposal shall take place unless approved in accordance with the
adopted Scheme of Delegation, or by Cabinet, and in accordance with
the Standing Orders – Disposal of Land
5.
The Head of Property and Facilities Management is authorised to
manage all disposals. The Head of Legal and Democratic Services is
authorised to deal with all legal documentation associated with
disposals. Reports concerning disposals of land/buildings, to Cabinet
or the relevant Portfolio Holder, will be in the name of the Head of
Property and Facilities Management and will include any comments of
the Chief Finance Officer and the Head of Legal and Democratic
Services.
Procedure for the disposal of property for development purposes
6.
Disposal of land for affordable housing purposes will fall under this
category of disposal (there also being two others within the overall
procedure). This sets out the steps required to move sites forward. In
relation to affordable housing development this requires Property and
Facilities Management to undertake an initial review of a site, as
described in the procedure, which includes (amongst other actions)
consultation with the Head of Housing and Benefits “to consider
housing matters”, as well as consultation with all other Heads of
Services regarding opportunities and constraints, and consultation with
those Heads of Service who will have a view on land use possibilities
and sale requirements - Planning and Transport, Legal Services,
Finance (s151) and sustainability and climate change agenda
7.
The results of the initial review are to be considered by the Strategic
Property Group (SPG) who is to establish the Officer's recommended
key objectives for disposing of the site. Property and Facilities
Management then consult with the Portfolio Holder for Finance and
Property and Local Ward Members and notify all Members regarding
the disposal investigations.
8.
A further detailed development appraisal is then required to explore
site potential. The outcome is to be considered by the SPG, and then
an Overview and Scrutiny Committee, and then Cabinet.
9.
The Head of Property Services and Facilities Management is to
recommend the method of disposal and the timing of any
marketing/disposal is to be considered against the background of the
Council's Medium Term Financial Plan and the state of the market.
General procedures for the disposal of property - Standing Orders Disposal of Land
10.
Generally disposals must be by formal tender, informal tender, public
auction or private treaty with advertising / marketing / a competitive
process.
11.
However off market private treaty sales - when the land is not offered
on the open market, but negotiations take place between the Council
and one party- are allowed in certain circumstances. Relevant to
affordable housing these include - the purchaser being an adjoining or
closely located landowner, and the only potential or likely purchaser;
and those where Council objectives would be best met by undertaking
private treaty negotiations with a single party who would bring social
environmental or economic benefit.
12.
Disposals at less than best consideration must be referred to Cabinet
for approval. The Cabinet report must cover certain matters which
include policy background supporting the proposal, the potential
consequences if the proposals are not approved, and an assessment
as to whether the proposal is likely to confer a commercial advantage
on the prospective purchaser. It is specifically stated that this does not
override restrictions on state aid arising under European Legislation.
Appendix 4 – Resolution of the Housing and Environment Overview and
Scrutiny Committee at its meeting on the 19th November 2009
To note the report and to recommend to Cabinet that: 1
(a)
Affordable Housing Targets should not be reduced. Rather the
council should re-affirm its commitment to the minimum target for
annual affordable housing completions (300 dpa) set out in the
Housing, Homelessness and Benefits Strategy 2008 – 2011.
(b)
(i) The Committee agrees in principle to setting up a Joint
Venture between the council and an RSL(s) as a means to
deliver additional affordable housing. Officers should be
authorised to explore this option in more detail.
(ii) However, officers should also keep a “watching brief” on
developments in the fields of Local Housing Companies and
Community Land Trusts.
(c)
(d)
The Committee notes that the council’s disposal and land use
policies, allow for the disposal of land to support the delivery of
affordable housing, and to agree in principle to officers drawing up
a list of potential sites for inclusion in the LDF that could be
utilised as joint venture opportunities with RSLs, subject to current
planning requirements.
The Committee agrees in principle to setting up a reserve to
support the delivery of affordable housing.
That in due course a report be brought to this Committee on the topic of
Council housing.