Development profitability now plays a prominent, and in some cases critical, role in planning decisions. Policies tested by local authorities at the top of the market and obligations imposed on schemes now create challenges for obtaining permission and delivering approved schemes. Ministerial pressure to 'Plan for Growth' and renegotiate planning gain deals will combine with increasing refinancing pressures over the next 18 months to make viability more pressing than ever. At the same time, the draft National Planning Policy Framework looks set to subtly but significantly shift the goalposts, as it elevates short-term deliverability issues in planning judgements. Planning authorities and developers will both need to prepare themselves for a change in approach.
Mind the gap
Existing Government guidance (contained in Circular 05/2005) stresses the importance of development feasibility when considering imposition of financial and other obligations to mitigate effects. It emphasises the need to strike a planning balance. It recognises that planning is not a numbers game. While some schemes will deserve to come forward now, albeit that they cannot contribute what they should, others will simply not provide sufficient public benefit to justify the policy harm.
The extent of obligations sought by many authorities to underpin mainstream revenue has undermined the credibility of the planning balance in many cases. As a result, viability contests are very often a proxy for challenging the reasonableness of the underlying policies themselves. The widespread adoption of Community Infrastructure Levy will change the focus but not the pressure to reduce or defer affordable housing requirements. Once set, CIL rates will not be discounted and some emerging rates will make a bigger squeeze on affordable housing provision inevitable.
The starting point in the NPPF is rather different to the current guidance, but has attracted little comment so far. Viability must be 'ensured' in the local plan by only imposing local requirements (including affordable housing) that do not jeopardise 'acceptable returns to a willing land owner and willing developer'. Local plan policies will clearly be rigorously reviewed, if challenged. The NPPF is silent on what should happen at the application stage if viability is an issue for a scheme, although the implication is that planning requirements should be reviewed if they threaten sustainable growth.
Clear guidance on how viability is to be interpreted or tested is therefore critical to avoid planning appeals being used to arbitrate technical disputes. The Planning Advisory Service and the Homes and Communities Agency already provide resources that are useful for planners in grappling with the issues, but the assumptions used in appraisals themselves a varied and conflicting. The RICS have published draft guidance for consultation to address these issues.
Planning appeals in which fruitless days are spent adducing and contesting valuation evidence underscore the need for greater transparency and commonality of approach by valuation professionals. The task is difficult but not impossible. In our experience, the NPPF and professional guidance need to address the following issues:
Clarity about burdens
- The draft NPPF would require LPAs to set policies to ensure viability over the plan period, and throughout economic cycles, but implies that viability should trump local requirements. What is the intention if policies are set in the local plan, but proper planning requirements cannot be met for viability reasons? The intention should be clarified.
- National policy should be clear that in resisting local plan requirements; the onus is on the applicant to prove its case with a transparent and clearly justified, realistic and internally consistent assessment.
Clarity about purpose
- Valuation guidance has a significant contribution to make where it guides valuers but it needs to be clear that it is only one input for planners. Viability decisions should not dictate planning determinations. Planning judgements will always be more than a numerical exercise. Because the NPPF emphasises sustainability, the draft viability policies arguably only make sense if they require viability to be ensured across the development plan period (rather than on a case by case basis, sacrificing local requirements). Affordable housing, good design, sustainability measures are, in some cases, not optional. National and professional guidance should clarify that while lack of viability may be an excuse for policy non-compliance, it should not be regarded as an automatic waiver.
- The NPPF should clarify that viability issues are different between the development plan and development management stage. At the development plan level, plan aspirations must, as far as they can be, tested to ensure that the plan vision is deliverable over the plan period, and not just at one point in time. Where sites are allocated in plans, it should reflect their realistic ability to bear essential infrastructure costs.
- Professional valuation guidance - providing template for different kinds of viability assessments, setting out the different possible approaches in areas of potential dispute - would be a great leap forward. It would free up planning officers to concentrate on planning issues and expedite the planning process, provided consultants confirm adherence to the recommended range of approaches (or justify their departure from it). As above, the guidance should suggest how viability across the development plan period can be understood.
Making the right case
- Professional advisers must continue to ensure that developer clients are advised to make the best case wherever possible by designing schemes to standards that create an irresistible argument for approving their delivery. Likewise, those advising authorities must ensure they recognise their freedom of action to form planning judgements to ensure sustainable development, which may mean relaxing some planning requirements.
- The Information Commissioner and the Planning Inspectorate will generally require disclosure of viability data, regardless of prejudice, unless there is a clear public benefit to maintaining confidentiality that outweighs the Aarhus Treaty and Environmental Information requirements to provide public access. Applicants should consider carefully how best to make their case whilst managing their exposure and there should be guidance on how to balance the public interest in disclosure and the protection of information that is genuinely commercially sensitive.
- RICS guidance should confirm (and update) accepted ranges for key values, whilst recognising that there will be exceptions. Toolkit models already do this and a comprehensive and up to date version would make a significant contribution to speeding the process up, particularly if local data is held and made public. Guidance should also clarify the treatment of contingencies, finance fees and the risk of double counting exceptional costs where they should (for example remediation) have been priced into the deal at the outset.
- Detailed guidance on treatment of developer's profits in different circumstances would also be helpful (including: differences between profits where schemes are equity, not debt, driven; return on land price; and profit on the provision of affordable housing or works in kind).
- In order to plan through the economic cycle local plans will have to have policies that allow requirements to change to react to changes in the market. Planning obligations may have to do the same. After CIL flexibility will mainly relate to affordable housing requirements. Deferred contributions will play a greater role, but to date are largely glorified cascades. Up front appraisal and re-appraisal before phases begin should be the norm, but in some circumstances it will be possible to measure and capture realised value after the event. Greater clarity is needed about the difficulties of doing so and the solutions required to reflect the fact that in development uncertainty is usually the norm (from which the prospect of profit emerges). Mechanisms are required to allow development to proceed where desirable, but capture the lost benefit if the future turns out brighter than expected.
National and professional guidance on viability should contribute to a clearer overall framework for dealing with planning matters, facilitating negotiated approaches to complex issues and avoiding arbitration and re-examination of local plan policies by appeal. It should require and enabling local authorities to adopt robust and realistic policies for local requirements. At the same time, by providing a stronger emphasis on clarity, transparency and commonality of approach such guidance can help to speed up the planning process for those interested in delivering development and growth.