Is transparency viable?

Emma Street from University of Reading sent me this article on viability appraisals in the English planning system. A lot of it focuses on the trade-off between commercial confidentiality and transparency/accountability in the use of viability appraisals in  local planning decisions. I’ve always been sceptical about developers’ claims that they fear losing competitive advantage if their viability appraisals are publicly available. I don’t think that there is much competitive advantage to the developer in keeping development viability appraisals confidential. Rather the main advantage to the developer from the preservation of confidentiality of development viability appraisals may lie in the lack of public scrutiny of these crucial tests. I find it difficult to make a convincing case that developers lose competitive advantage and believe that developers rarely need to release information that could be considered “commercially sensitive”.   Here’s my reasons

  1. A development viability test for a proposed development scheme is rarely based upon the actual developer’s circumstances and beliefs on costs and revenues and the actual developer’s circumstances regarding land cost, cost of capital, financial structure, operating costs etc. If it were, it could reward (with lower planning obligations) a developer with pessimistic assumptions, a poor business plan or model or a commercially weak proposed scheme. It seems absurd to reward an incompetent or inefficient developer with lower planning obligations. The models tend to assess the viability of the proposed scheme for a typical developer using a typical viability model and typical assumptions. So – developers don’t need and shouldn’t be revealing details of their specific financing arrangements, side deals etc. I doubt that they ever do anyway. It’s usually a fairly bog standard consultant’s report, not the developers own constantly changing financial model?
  2. Although there is a significant resource involved in collection, often all the information on ‘typical’ or ‘consensus’ estimates and expectations regarding the main inputs to perform a development viability appraisal of a proposed scheme is already available to the public – albeit sometimes at a cost. Since a development viability appraisal should be capable of being replicated by a market professional, it is difficult to identify a significant loss of competitive advantage to a developer created by transparency regarding development viability appraisals.
  3. When land or other rights necessary for development still need to be acquired by the developer, one argument is that the developer’s bargaining strength in future negotiations will be reduced by making their assumptions public in a viability appraisal.  However, this presumes that owners of these land or rights are poorly informed and may sell at ‘low’ levels. Further, if developers manage to acquire the land or rights at less cost than assumed in the viability appraisal, an abnormal (i.e. more than competitive) profit level is generated and potential community gains may be foregone. For example, let’s assume that a developer assumes £1,000,000 cost of compensation for rights of light issues. They would tend to argue that their negotiating position with the owners of the rights of light would be compromised if this information were made public. This makes a number of possibly unrealistic presumptions. Firstly, that there is only one party eligible for right of light compensation who now sees the budget of the developer for this item. Secondly, that this owner is unaware of the ‘going rate’ for the loss of right to light. What if the developer were able to negotiate the rights to light for £500,000 instead of £1,000,000? Then they’d have obtained a windfall profit in lieu of a potential benefit to the community.   In essence, the developer’s argument seems to be here “I need these details to be kept confidential in order to have the opportunity to earn an abnormal profit”

Of course, the other potential loss to the developer from making development viability appraisals available to the public is likely to be created by the increased ability of the public to scrutinise and challenge the inputs and outputs of the development viability appraisals. Did Tom Clancy really say “The control of information is something the elite always does, particularly in a despotic form of government. Information, knowledge, is power. If you can control information, you can control people”?

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