This advice note provides information to applicants as to the minimum level of detail required to begin discussions around viability.
This advice is intended to help applicants needing to commission or undertake viability assessment. By asking the right questions up front all the necessary calculations and supporting information can be provided to the planning authority first time. This will help to minimize delays in processing and determining planning applications.
Ideally, any such discussions would form part of pre-application discussions. It should be noted that this information is provided for guidance only. Each scheme will be considered on its merits.
It is the responsibility of the applicant to demonstrate that a scheme is unviable.
In most cases a Residual Land Value (RLV) assessment, from a suitably qualified person, such as a RICS surveyor, will be the most appropriate way to do this. Larger more complex residential and mixed use schemes are likely to require more complex viability models. If you are proposing a more complex scheme please contact the Planning Team as early as possible for advice.
What is an RLV?
Residual Land Valuation (RLV) is a process for valuing land with development potential. RLV can be used in several ways:
- By calculating the potential receipts (known as Gross Development Value- GDV) from the development, less the development costs (including planning contributions, interest payment and the minimal level of profit required), RLV can be used to calculate what price could be paid for the land.
- By calculating the potential receipts (GDV) from the development less, the development costs (including planning contributions, the cost of the site and interest payment), a RLV can be used to calculate the level of profit that the scheme would generate.
- By calculating potential receipts (GDV), less development costs (including the cost of the site, interest payments) and the required level of profit, a RLV can be used to calculate the amount of money available in the scheme to make planning contributions.
For the purpose of discussions around the viability of a housing scheme, this way of setting out an RLV is likely to be most useful:
Total Development Value (TDV) of the site
All the Development Costs (including a return for the developer and the cost of land)
The amount available to pay for s106 Planning Obligations (and CIL) contributions
Calculating Development Receipts (GDV)
Development receipts are the money generated from completed scheme. Usually this will be the sum of anticipated sales of the completed units. These should be provided on a per unit basis.
Calculating Development Costs
Development costs are the costs required to bring the site forward. This includes build costs, land costs, professional fees and developer’s profit. Costs should be broken down into their constituent parts. Build costs should be provided per square meter per unit, with the floor space of each unit clearly specified. Be sure to include other sites costs and professional fees as well as the land value and developer’s profit.
Understanding a RLV
A RLV viability appraisal is therefore a calculation of values minus costs. As such, changes which reduce costs and/or increase values, will improve viability. Likewise, changes which increase costs and/or reduce values will decrease viability. Viability assessments are essentially calculations, and as such are only as good as the information that is fed into them. Therefore, supporting information is required that sets out the sources of information used, for example, information from estate agents or property websites, quantity surveyor’s costings, local knowledge. This explanation is as important as the figures themselves in terms of informing viability discussions.
RLV and Confidentiality
Information provided to support planning applications is normally uploaded to the Council’s website. RLVs can be submitted on a confidential basis, but in such cases it is recommended that a non-sensitive summary is produced which would be viewable by members of the public. You should however note that viability assessments can be the subject of requests for information under the Environmental Information Regulations and/or the Freedom of Information Act. Guidance and case law would suggest that the majority of any such report would have to be released although we would discuss any release of sensitive information with you first.
Minimum Contents of A Viability Report
All Viability Appraisals should include a supporting report with any valuations and/or spreadsheets outputs included at the end explaining and interpreting the figures and calculations. The submission of figures and calculations alone is likely to result in the Council asking for further information therefore extending the decision making process and timescale.
In preparing this report it may be helpful to remember the purpose and audience of the document. Namely, that it is to help the applicant to demonstrate compliance with Strategy 34, which requires as much affordable housing as is viable if the proposal is not policy compliant.
Every appraisal should therefore provide a narrative about what the viability issue is, what has been done to address it, and what level of affordable housing is now being proposed with justification.
The viability appraisal therefore needs to include the following as a minimum:
- A brief explanation of the background and history of the scheme and why viability is an issue;
- Work though the costs and values used in the appraisal including a clear explanation of the inputs and outputs;
- Clearly set out the findings of the appraisal and what level of affordable housing the scheme can support;
- If there have been revised appraisal(s), for example because the scheme has been redesigned and/or reflecting the passage of time, it will be necessary to explain this including what has changed between the earlier appraisals;
- It must also reach a clear conclusion on exactly what affordable housing is therefore being offered.