As noted in previous blog posts, a key issue in viability modelling in the English planning has been the definition of what a competitive return to the land owner should be. Remember – land value capture (or lack of) from land owners on behalf of the community (in the form of affordable housing and other planning obligations) is at the heart the viability process. Following recent planning appeals, particularly Parkhurst Road Territorial Army site in Islington, there seemed to be a growing momentum that land prices – involving non-policy compliant schemes – could be used to set a benchmark for the competitive return to the land owner.
It is recognised (apart from by those who have a vested interest in not recognising it) that there is a ‘race to the bottom’ problem i.e. all else equal developers who assume that they can provide less affordable housing are able to pay more for sites, will then set the ‘market level’ of land values and, therefore, make affordable housing appear to be unviable on other sites because the competitive return to the land owner seems to need to be so high.
It’s worth quoting the PPG’s guidance on land value to see the problem of ambiguity in guidance. It states that
In all cases, land or site value should:
- reflect policy requirements and planning obligations and, where applicable, any Community Infrastructure Levy charge;
- provide a competitive return to willing developers and land owners (including equity resulting from those wanting to build their own homes); and
- be informed by comparable, market-based evidence wherever possible. Where transacted bids are significantly above the market norm, they should not be used as part of this exercise.
The interpretation of the words ‘reflect’, ‘informed by’ or ‘wherever possible’ could probably keep some planning barristers busy. It’s not exactly crystal clear.
In the Parkhurst Road case, the Inspector put weight on ‘market-based evidence’ rather than policy requirements. There’s a piece in Planning Resource yesterday reporting a claim by Islington that the government’s legal department has endorsed their core argument that only market transactions involving sites that are planning policy compliant should be the benchmark for a competitive return to the land owner.
We’ll see how this plays out. Given that the so-called ‘flex’ in planning obligations has been affordable housing, at the end of the day (never advisable to use such clichés!) the interpretation of competitive return to the land owner will be a major determinant of the trade-off between land prices and affordable housing supply through planning obligations. My guess is that, in the current political environment, land owners’ interests will prevail – at the end of the day.