8. Background to the commuted sum calculator
The commuted sum is calculated using the following calculation:
Commuted Sum = Residual Value Market Housing – Residual Value Affordable Housing
The residual values of both market and affordable housing are a result of the revenue value minus the costs of delivery. The costs of delivery are calculated as being the basic costs of build, fees and interest in the case of the affordable housing with the costs of the developer return and marketing fees added in the case of market housing.
The calculator does not calculate whether or not the scheme can afford the target amount of affordable housing. To do this would require a full analysis of costs and revenues with supporting information as to how they were derived and the appropriate financial modelling. The Calculator is designed for the specific purpose of calculating a commuted sum.
These notes explain the principles behind the Calculator and the data it uses to assist developers and other interested parties to understand how the commuted sum has been calculated.
It is important to remember that viability discussions do not take place in isolation. As a planning authority we have to deliver sustainable development, and consider any applications in line with the policies in the adopted plan and any other material considerations.
The policies in the plan need to be taken together and the plan must be read as a whole. The policies in the plan have been through various stages of consultation and a public examination by a Planning Inspector. The policies are supported by evidence, and this evidence, and the policies it supports, has been scrutinized through the plan-making process.
In terms of viability, it is important to note that the policies and supporting evidence already:
- assume a reasonable level of profit for the developer
- assume a reasonable return for the landowner
- understand and allow for consideration of risk
- include buffers and allowances for uncertainty
- are mindful of the economic cycle
- have taken account of financing costs
- assumes no grant is available
- reflect local circumstances
Therefore, as the National Planning Practice Guidance acknowledges “Decision-taking on individual applications does not normally require consideration of viability.
The ‘contribution’ made by a developer as a commuted sum is the assessed difference in residual value of a 100% market housing scheme and a scheme with the policy requirement for affordable housing (or a lesser percentage where this is justified by viability considerations).
Residual value is the difference between the total scheme revenue (of the market and affordable housing) and the cost of the scheme (including a 20% return to the developer) based on BCIS data.
In summary, the Calculator calculates the difference between the revenue for a market unit (less an allowance for the developer return and marketing fees) and the revenue for an equivalent affordable housing unit, at the relevant % of affordable housing.
To Council uses the CSC values and costs for a 2 bedroom house as the default house type and size when calculating the affordable housing contributions payable.
Clearly the calculator is reliant on default data on factors such as house prices, rental levels, marketing fees, dwelling sizes etc across the district, however the data used takes account of differences in values across the district where appropriate and is based on up to date viability information. The council will keep this information under review and update the default values when necessary. The data will be reviewed if there are significant changes in costs and/or values in the interim.
Overage
Where a proposal does not meet the affordable housing targets it will be necessary to submit evidence to demonstrate why provision is not viable or otherwise appropriate. An overage clause will be sought in respect of future profits and affordable housing provision, where levels of affordable housing fall below policy targets.