The way that viability assessments are produced is proving a barrier to the delivery of affordable housing, a London Assembly committee has heard. Its planning committee was taking evidence from housing and property experts at a special session, which had been convened in the wake of mayor Boris Johnson’s recent claim that viability assessments have become "a dark art". His concern follows recent coverage in the national media over schemes such as the Heygate Estate redevelopment at Elephant and Castle and the Greenwich Peninsula development, both in south London, where affordable housing provision has been reduced on viability grounds.
John Wacher, viability and section 106 manager at the London Borough of Islington, said a key problem is that developers pay high prices for land and subsequently feed information into viability assessments based on inflated costs to determine the "benchmark land value". He said this is the starting point for viability assessments because it establishes the uplift that will be generated after a grant of planning permission, and thus the resulting scope for affordable housing provision. "If the benchmark figure is an inflated sum based on market factors that do not adequately reflect plan requirements, the model results in a lower uplift," he said. "It predetermines the outcome of the viability assessment and so undermines the plan-led system and its ability to deliver affordable housing."
Dr Sue Brownill, reader in urban policy and governance at Oxford Brookes University, agreed: "The current method does not fully reflect the uplift in land values resulting from permission, which is the benefit that should be captured by the community," she said. Dr Bob Colenutt, senior lecturer in the institute of urban affairs at the University of Northampton, argued that various inputs for viability assessments, such as developer profit, build costs and contingencies are "all set at a high level, which is difficult for councils to dispute".
But the development industry argues that the practice of viability assessments reflects market realities. "We have to work within a statutory regime, but the planning policy system also has to work within the market," Robert Fourt, partner at property consultancy Gerald Eve, told the committee. "We have a system that is totally reliant on the private sector for delivery, so it has to be given incentives to do so otherwise it will not deliver."
Tony Mulhall, associate director of the Royal Institution of Chartered Surveyors, agreed. "We expect values to be determined in a market environment, having regard to planning policy," he said. "The developer has to get the price right."
The National Planning Policy Framework states that the value assumed for the land in viability assessments "may include the current use value of the land or its value for a realistic alternative use that complies with planning policy". It is explicit that "in all cases, land or site value should reflect policy requirements and planning obligations".
Wacher’s authority last week welcomed a letter it received from the government which confirmed its "unambiguous policy position" that the value of the land used for viability assessments should reflect policy requirements. Islington had been prompted to contact the government as a result of an inspector’s ruling on the Parkhurst Road Territorial Army site in the borough, which accepted the appellant’s land value case even while rejecting its housing proposals. The government’s letter sends an important signal, said Wacher. But he added that the council’s position will be further strengthened when it adopts a new supplementary planning document (SPD) on development viability, expected in January.
Getting such an SPD in place to deal with viability at the outset is one of the key practical steps that local authorities can take to deal with this issue, said Wacher. "Having your own guidance on viability is a good first port of call," he said. "This enables you to set out a clear framework on how viability is appraised, the information required and how to tackle some of the various loopholes and inappropriate practices." The London Borough of Southwark is following suit, and last week published a draft SPD on development viability that is similar to Islington’s.
Other measures that councils should take include building and sharing skills, Wacher. "Viability has become such a central part of the planning process it is not an area that can be avoided," he maintained. "If an authority is serious about implementing its plans and policies and delivering sustainable development, viability needs to be taken very seriously."
Brownill added that the need to develop skills does not just apply to planners but also to consultants and district valuers involved in viability assessments. "Local authorities also need to get the advice they expect. Sometimes they have not had the right advice," she said. "So it is not just the skills at the local planning authority but also in the wider policy community."
Timely preparation of plans is also essential, Cole nutt added. "Getting local planning policies in place that are well-evidenced, really specific on what you want and that have public support behind them is a crucial first step," he says. "It is really important to make sure that you have a plan-led system – otherwise you end up with a viability-led system."