16 May 2018

The revised draft National Planning Policy Framework (draft NPPF) published on 5 March 2018, was subject to consultation until 10 May. The accompanying draft Planning Practice Guidance (draft PPG) was not part of the consultation.

To date paragraph 173 of the NPPF has set out (in the interests of ensuring viability and deliverability [of plans and developments]) that "taking account of the normal cost of development and mitigation" the cost of any requirements (e.g. affordable housing and infrastructure contributions etc) should "provide competitive returns to a willing land owner and willing developer to enable the development to be deliverable.". 

Using fewer words, the draft revised NPPF states that policy requirements on development contributions "should not make development unviable and should be supported by evidence to demonstrate this." (draft paragraph 34). 

Indicating that it is primarily at the plan making stage that viability should be assessed, the draft guidance also states that "Plans should set out any circumstances where further viability assessment may be required in determining individual applications."

The draft guidance sates that "Where proposals for development accord with all the relevant policies in an up-to-date development plan, no viability assessment should be required to accompany the application. Where a viability assessment is needed, it should reflect the recommended approach in national planning guidance, including standardised inputs, and should be made publicly available", (draft paragraph 58).

In summary the draft revised NPPF, on planning applications and viability provides:

  • no need for viability assessments at the application stage where developments accord with all relevant policies
  • viability assessments should reflect government’s standardised approach (revised Planning Practice Guidance)
  • viability assessments should be publicly available.

The intention therefore is that the cost of complying with the local plan policies should be taken into account in the original purchase price for the land.

This is also reinforced by the recent decision in Parkhurst Road Ltd v Secretary of State for Communities And Local Government & Anor. This decision emphasises the importance that the benchmark land value used in the viability assessment should reflect planning policy requirements.

Guidance on viability

Current guidance

Current guidance requires land value to reflect policy requirements, provide a competitive return to the landowner and be informed by comparable market evidence. To date that evidence has often been the issue in circumstances where applicants have typically sought a relaxation of the LPA's affordable housing requirement and authorities have countered that the land value is too high to allow this relaxation.

Draft Planning Practice Guidance

The draft Planning Practice Guidance (draft PPG) provides that "the role for viability assessment is primarily at the plan making stage" (page 5). Particularly for affordable housing, policy requirements should be set at a level that allows for sites allocated in the plan to be delivered without the use of further viability assessment at the decision-making stage; "The use of viability assessment at the decision-making stage should not be necessary." (page 4).

The new draft PPG makes it clear that government is recommending that viability is assessed in detail by the local authority at the stage of setting its development plan and allocating land for certain uses, and that specific assumptions should be made at that stage regarding land value and what is a reasonable return for a developer.

Standardised inputs to viability assessment

The draft PPG states that to define land value for any viability assessment, a benchmark land value should be calculated on the basis of the existing use value of the land, plus a premium for the landowner (EUV+) and assuming a return of 20 per cent of gross development value (GDV) for the developer in appropriate circumstances. The draft PPG provides that a lower figure of 6 per cent of GDV "may be more appropriate in consideration of delivery of affordable housing in circumstances where this guarantees an end sale at a known value and reduces the risk" (page 10). The draft PPG also acknowledges that different figures may be appropriate for different development types, for example build to rent.

No viability assessments at the planning applications stage

Plans should set out circumstances in which viability assessment at the decision-making stage may be required. Any viability assessment should be supported by evidence informed by engagement with developers, landowners, infrastructure and affordable housing providers. Any viability assessment should follow the government’s recommended approach to assessing key factors as set out in the draft PPG and be proportionate, simple, transparent and publicly available (page 4).

No viability assessment will need to be submitted with a planning application for a policy-compliant scheme (this is the current position but is now also confirmed in a new paragraph in the draft NPPF).

The guidance and the draft NPPF state that where viability assessments are required, they should include standardised inputs and should be made publicly available (paragraph 58). The draft PPG states: "Above all, consistency between the approach to viability assessment for plan making, decision making, section 106 planning obligations and CIL is required". (page 5).

A significant change in approach

It is a significant change in approach that the draft guidance proposes that land price be based on EUV+. Crucially, "The premium […] should reflect the minimum price at which it is considered a rational landowner would be willing to sell their land".

The draft PPG provides that this premium can be established "(…) by looking at data from comparable sites of the same site type that have recently been granted planning consent in accordance with relevant policies." (page 9).

The proposed defined method for calculating land value and the assumptions on the developer's return at the stage of the authority making the local plan may in future make it more difficult for a developer to re-open negotiations on viability at a later stage. The draft PPG states that the circumstances for the use of review mechanisms should be set out in local plan policies (page 6), including policies in plans that set out when and how review mechanisms may be included in section 106 agreements. The draft PPG also notes that review mechanisms may also be used to capture increases in the value of a scheme over time, and to allocate this between the local authority and developer.

Comment

The draft PPG puts more emphasis on assessing viability at the plan making stage to ensure that policies and requirements do not present a barrier to the delivery of development. It is unlikely that blanket affordable housing requirements would not be challenged especially where it can be shown that previous achieved levels are lower than the LPA requirement. The assessment of viability at the plan making stage and the level of detail required is likely to have a knock on effect in extending the period to adoption which might work against the thrust for speedier local plan production.

There is a question on how the guidance will apply to sites which have already been purchased on the basis of current policy and guidance, including the existing advice on taking account of comparable market evidence.

The guidance appears clear when it directs that only examples where the price paid for a site has been on the basis of delivering a policy compliant development should be used as comparable evidence to establish the landowner premium.

For example, if policy requires 'X' per cent affordable housing, a comparable site should be one that provides this level and the price of the site should reflect this. To date it is has been not uncommon for local policies to allow for lower affordable housing contributions (or none), if viability evidence appears to justify this. There will therefore be instances there site purchases have led to permissions that do not provide the maximum policy level of affordable contribution. Those instances will be in accordance with the relevant policies, where those policies allow for flexibility in the level of contribution. The question then arises can these instances be used as comparable examples to determine the landowner contribution in accordance with the approach now proposed guidance?

It would appear that the draft PPG seeks to address this question and may suggest that this is not intended. It states that "Where a viability assessment does accompany a planning application the price paid for land is not relevant justification for failing to accord with relevant policies in the plan."

The intention therefore is that the cost of complying with the local plan policies should be taken into account in the original purchase price for the land.

This is also reinforced by the recent decision in Parkhurst Road Ltd v Secretary of State for Communities And Local Government & Anor [2018] EWHC 991 (Admin) (27 April 2018). This decision emphasises the importance that the benchmark land value used in the viability assessment should reflect planning policy requirements. In delivering the High Court judgment, Holgate J said having examined land and sales values in the area "it is clear that the appeal proposal would not provide the maximum reasonable level of affordable housing in accordance with policies".

With the likely adoption of the revised guidance and now following this decision, in future, developers should be very wary of not adequately factoring policy costs into the site acquisition costs.