What new viability guidance means for applicants and authorities

Updated guidance on viability has further clarified the way land values are assessed, say practitioners, but will throw up both benefits and challenges for councils and developers.

Development: councils have been told that viability assessments should be part of the plan-making process (pic: Getty Images)
Development: councils have been told that viability assessments should be part of the plan-making process (pic: Getty Images)

Launching the revised National Planning Policy Framework (NPPF) in July last year, the government published accompanying Planning Practice Guidance (PPG) on viability that upended the established way of doing things. Councils and developers were told that viability assessments should be part of the plan-making process, aiming to prevent the need for further discussions at the application stage. In addition, benchmark land values informing viability assessments should be calculated using a site’s existing use value (EUV) plus a premium for the landowner and explicitly not on the price paid for a site, the NPPF and PPG said.

This month’s revisions to the guidance are not quite as revolutionary – but nevertheless introduce a series of important changes. Matthew White, head of planning at law firm Herbert Smith Freehills, said: "Having got those big changes established we’re now seeing an evolution."

Some of the most significant changes this time around relate to the definitions of EUV and alternative use value (AUV), which the PPG states "may be informative" when assessing land values. The revised guidance removes the ability for the value of any future development taking place under an extant planning permission to be taken into account when establishing EUV. "They are saying that you can’t take into account hope value associated with planning permissions which are not implemented," said White, "which I think is a sensible clarification."

However, implementable planning permissions can be considered when establishing AUV – but the revised guidance also permits consideration of any uses that may not have been granted permission but would be in accordance with local plan policies. Matthew Spilsbury, head of development viability at consultancy Turley, said this is a similarly sensible revision. "Before, there was a suggestion that you would have to put in an application and have it approved for something you never had any intention to deliver," he said. "Now it’s made that case very clear that you don’t need a permission."

Where could this leave developers that acquired sites based on assumptions about EUV under the previous guidance, which allowed hope value to be considered if there was an existing permission? "In a difficult position," said Spilsbury. However, he added that overall the move is a positive one: "We now have greater clarity." There are other reasons for landowners and developers to be cheerful, said Spilsbury. The revised guidance calls for authorities to "engage with landowners, site promoters and developers" when assessing viability. "It emphasises that there should be a more robust process," said Spilsbury, welcoming a "requirement for local authorities to ensure industry engagement is fully meaningful".

A new section on education provision states that developer contributions will now be used to help pay for education facilities, with schemes expected to provide "funding for construction and land for new schools" required as a result of development. James Mercer, associate director of development economics at Boyer, said that, in practice, this means councils have one more thing to add to their infrastructure wishlists. "There is only a certain amount of money that can go round," he said. That might mean local authorities choosing between affordable housing contributions or schools, said Mercer.

Planning consultant Gilian Macinnes said councils may now have a stronger hand in viability discussions. The updated PPG now states that site promoters must take into account all costs of "development which fully complies with up to date plan policies". That may be a helpful reminder for local authorities, said Macinnes. "For many years they have had these viability assessments put before them that say, we can’t afford the necessary affordable housing or 106, it’s not viable. This gives local authorities confidence to say, no, the guidance says it must be fully compliant."

Five key changes in new viability guidance

1 A new focus on the need to ensure development being assessed for viability purposes is policy compliant. The guidance defines this as development that "fully complies with up to date plan policies" – and therefore avoids the need for a viability assessment – adding that decision makers can give "appropriate weight to emerging policies".

Greater emphasis on the need for planning authorities to consult with the development industry to test viability assumptions. Plan-makers are asked to "engage with landowners, site promoters and developers" to "ensure assumptions of costs and values are realistic and broadly accurate".

3 A tighter definition of existing use value (EUV). The guidance states that EUV is the "value of the land in its existing use" but removes the ability to take into account "the right to implement any development for which there are policy compliant extant planning consents".

An expanded definition of alternative use value (AUV). The guidance states this can now take into account not just an "existing implementable permission" but any "uses which would fully comply with up to date development plan policies".

5 Inclusion of costs and land requirements for education provision in viability calculations. Plan makers are told that this should "inform site typologies and site-specific viability assessments" and that development should "provide both funding for construction and land for new schools".

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