Viability tests should use existing use values, by Richard Garlick

A study published this week accuses the National Planning Policy Framework of contributing to a diversion of funds from affordable housing to landowners' pockets.

Commissioned by 13 London boroughs from the Royal Agricultural University, Reading University, Kingston University and Ramidus Consulting, it concludes that the NPPF’s requirement that the planning system should not place burdens on schemes that would prevent developers from making "competitive returns" has contributed to a decline in affordable housing provision.

Like others who have studied the issue, the authors suggest that a key problem is a lack of clarity about how viability should be assessed. They point to the tendency for developers and landowners to argue, with the backing of the Royal Institution of Chartered Surveyors, that a site’s market value should be used as the benchmark for the viability of the scheme that is to be built on it.

But, thanks to the NPPF’s strict viability requirements, this means that developers who overpay for land can recoup the money by contributing less affordable housing. This leads to "inflated" land values and a reduced level of affordable housing, according to the report.

The answer, the authors suggest, is for viability assessment to calculate the revenue generated by a scheme by comparing the value of the built-out scheme, minus development costs, to the site’s existing use value, rather than its market value.

Some sort of premium would have to be included to incentivise the landowner to release the land, but this should not cause the sort of upwards pressure on price that has been created by using market value as the basis for viability assessment. This is the approach that the London mayor is proposing in his draft affordable housing and viability supplementary planning guidance. It represents a way of rectifying a system which has recently overly favoured the landowner.

Richard Garlick, editor, Planning 

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