Changes to national planning policy mean the financial viability of property developments is taking on an increasingly important role in the planning and plan-making process, according to a new report
Financials have always been key to the success of any development but, according to a new study from planning and development consultancy Lichfields, changes to national planning policy and related practice guidance have shifted the focus and priority – and this necessitates and change in approach for those seeking to promote the Local Plan process.
The research, Fine Margins: Viability Assessments in Planning & Plan-making, examines the way in which viability assessments are being conducted and for the purpose of area-wide viability studies to inform Local Plan preparation.
“Increasingly, there is a ‘frontloading’ of viability assessments to the plan-making stage. The impact and shift of emphasis cannot be overstated. Financial viability assessments are now very much in the planning realm,” said Simon Coop, planning director at Lichfields.
“Recent evidence we have gathered and analysed in the residential housing market suggests that the soundness of Local Plans is increasingly being fought on a viability battleground.
“Viability is a critical but often misunderstood concept, and one that is central to the delivery of housing sites and the successful implementation of Local Plan strategies.”
Balancing GDV and the development total costs
In simple terms, the report states, viability relates to the relative balance between the value generated by development (GDV) and the total costs associated with delivering that development.
If the GDV is equal to or greater than the total cost, the scheme is viable. If not, the delivery of the development could be compromised unless additional funding is secured or costs are reduced.
Will Christiansen, who carried out much of the research for the report, said that traditionally, financial viability assessments would usually be carried out by commercial surveys, often later in the planning and development process.
However, changes to national planning policy and related practice guidance in England and Wales present significant challenges for developers and plan-makers.
This largely relates to policy seeking to “frontload” consideration of development viability so it is given much greater emphasis at the strategic plan preparation stage.
“The importance of these changes cannot be overstated: recent evidence suggests that the soundness of Local Plans is increasingly being fought on a viability battleground,” the report states.
The assumption that flows from “frontloading” is that developers that accord with the strategic plan will be viable. An applicant must demonstrate why the viability of their development is compromised because of a change in circumstances since the plan was adopted.
However, Local Plans provide a long-term development framework and it is essential they are flexible enough to account for changing circumstances, such as rising costs and potential changes in development values over the next 10 to 15 years.
While certain situations, such as the Covid-19 pandemic, cannot be reasonably anticipated by policymakers, the cyclical nature of the economy brings the need for flexibility into sharp focus, the report states.
Viability becomes increasingly significant during an economic downturn and this could result in the need for local authorities to be adaptable in their application of planning obligations and requirements so that development can continue to come forward in the right places throughout the plan period
The new approach to viability also underlines the importance of full engagement with the plan preparation process by those looking to promote land for development.
The report states that attention should be focused on:
- Demonstration that its site is deliverable from a financial viability and technical perspective
- Scrutiny of proposed allocations that are not considered to be viable or deliverable.
- Ensuring the council’s viability assessment takes account of an appropriate range of development typologies and that these are reflective of the local area.
- Providing robust inputs to the council’s viability assessment in respect of costs and development values so that it can inform reasonable policy choices.
- Ensuring that the viability assessment considers all relevant matters – for example, the viability implications of design standards and environmental requirements, rather than focusing solely on Section 106 and Community Infrastructure Levy (CIL) requirements.
- Ensuring that a balance is struck between the need to satisfy requirements for affordable housing or infrastructure funded by CIL and the importance of ensuring that the wider deliverability of development is not undermined.
- Setting reasonable expectations in terms of land value for landowners and site promoters.
Christiansen said the study aims to reduce confusion and create more meaningful debate between developers, planners and local authorities.
“Changes introduced in 2019 are really starting to impact the sector,” he said.
“There is widespread confusion in planning practice and guidance, and this piece of insight aims to demystify some of this and become a key reference document across the industry.”
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