More viability matters

On the vexed issue of the “competitive return to the land owner” in viability modelling, on 22nd September, there was what looks to have been a significant planning appeal decision that addressed the issue of Benchmark Land Value in viability modelling (Appeal Ref: APP/V5570/A/14/2227656 Former Territorial Army Site, 65-69 Parkhurst Road, London N7 0LP). It’s worth quoting the Inspector who displays a good understanding of the issues. He focussed on the issue of whether Existing Use Value should form the basis for estimating a competitive return to the land owner or whether it should be based on current market prices evidenced by transactions.

In this context I can understand the wider concern of the Council about the possible effect of inputting purchase prices which are based on a downgrading of the policy expectation for affordable housing on the eventual outcome of a scheme viability appraisal. If such prices are used to justify a lower level of provision, developers could then in effect be recovering the excess paid for a site through a reduced level of affordable housing provision. Such a circularity has been recognised in research for the RICS, and the Council in its SPD and the GLA (in its Development Appraisal Toolkit Guidance Notes of 2014) are alive to this potential outcome of using purchase price as an input in viability assessment. The Council postulates an undesirable scenario of diminishing returns of affordable housing and eradication of the potential to achieve its delivery. It argues that the current appeal is an opportunity to return to a proper approach.

BUT (this is me)

…the PPG stresses the need to take account of market signals.

Oh,Oh (me again)

The only information on such signals in this case supports the use of the appellant’s land value figure. Importantly, the evidence does not suggest that a reasonable landowner would be incentivised to release the land for development at the value suggested by the Council. The options for a rational owner in a rising market include that of holding onto the land rather than selling it below a value indicated by the market.

This is consistent with national guidance which seeks to avoid jeopardising viability. The boosting of housing development in general terms assists in the supply of affordable housing. National policy is firmly in favour of realism and flexibility where the viability of a development is in question. In this case, the market evidence supports a higher valuation for the site than that used by the appellant and the scheme is strictly not viable on the current figures.

Taking all of the above into account, the appellant’s land value figure (roughly what they paid) can be regarded as adequately reflecting policy requirements on affordable housing. Bearing in mind that the development plan policy is to seek the maximum reasonable rather than the maximum possible amount of affordable housing, on the available evidence of the current position I consider that what is being offered in this case would achieve that.

As I think the Inspector appreciated, the obvious flaw with this logic is the circularity that he identified.

The emphasis of the PPG on market signals looks like it swung it. When I first saw the PPG, it looked like a deliberately and carefully drafted “instruction”. But it’s hard to see how it makes any sense from a policy formation perspective. How can transactions that may reflect obsolete or incorrect assumptions about levels of affordable housing be used as a benchmark to set or implement policy on affordable housing levels? Basically the view was taken that the landowner should receive £13.26 million for the site because other land owners had received similar amounts for other sites.   If “market signals” reflect a policy regime of no affordable housing, then viability studies are likely to find that no affordable housing is viable and planning authorities would not be able to justify any affordable housing requirement. In this specific case, whilst the policy was for 50% affordable housing, previous schemes had managed to provide on average 25% and this was regarded as “adequately reflecting” policy requirements. So – a policy compliant scheme was “strictly” not viable.

Broadly, I think that you have to put the PPG in the context of a broader government policy prejudice against affordable housing. The Inspector is now creating precedents that reflect this policy prejudice. It goes back to viability being an instrument rather than a cause. I’m fairly sure that, if viability didn’t exist as an option, the government would have found another method of favouring land owners and private house builders (the latter are often both). That’s the government’s prerogative but we shouldn’t deflect too much the blame onto the viability procedure.

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