Valuation for affordable housing - Slides
Transcript Valuation for affordable housing - Slides
Valuation of land for Affordable Housing
Charles Solomon MRICS
9.30 - Start
11.00 - Break
12.30 - Lunch Break
15.00 - Break
17.00 - Close
Charles Solomon – who am I and why am I here?
You – who are you and why are you here?
When does affordable housing get developed?
Affordable housing types for new developments
Methodology for developing development land
Factors affecting development land values – including GDV,
costs, finance, etc.
Exercise 1: How is affordable housing
5 minutes: Affordable housing is delivered in a number of different
ways. Identify as many as you can.
What is affordable housing?
Definition provided in England: NPPF: Affordable housing:
Social rented, affordable rented and intermediate housing,
provided to eligible households whose needs are not met by the market.
Eligibility is determined with regard to local incomes and local house prices.
include provisions to remain at an affordable price for future eligible
for the subsidy to be recycled for alternative affordable housing provision
Removed from previous (PPS3) definition:
Meets the needs of eligible households including availability at a low cost.
Enough for them to afford.
TENURE TYPES- SOCIAL RENTED
Indexed based from January 1999.
The basis of valuation adopted is EUV as set out in the RICS
Valuation Standards at UKPS 1.3
Aim to reach Target rent by 2012.
SOCIAL RENT- GROSS TO NET RENT
Net passing rent is calculated by deducting the following costs from
the gross rent receivable by the registered provider:
• management costs;
• repairs & maintenance costs;
• allowance for voids & bad debts;
• annual sinking fund (including allowance for major repairs); and
• unrecoverable service charge.
TARGET RENT DATA EXTRACT 2009
TENURE TYPES- AFFORDABLE RENT
New tenure introduced in 2010
Minimum term 2 years
Up to 80% of market rent- but exceptions
Annual increase RPI + 0.5%, but re-assessed at end of tenancy term
Local Housing Allowance (LHA) cap
Weak/ fragile market
AFFORDABLE RENT- ASSESSMENT OF RENT
Assessment by LA and RPs as to what level of rent is affordable:
Research property prices, rent levels & LHA
Analyse current and future benefits allowance
Produce affordability assessments based on household income
Typically, “affordable” rent is defined as a rent that does not
exceed 1/3 of gross household income.
Recommended AR example (LBTH):
% of MR
Affordable Weekly rent
TENURE TYPES- INTERMEDIATE
NEW BUILD HOMEBUY
Part purchase, part rented
Rent element typically averages 2.75% of retained equity.
NEW BUILD HOMEBUY- AFFORDABILITY
PLANNING INFLUENCES IN ENGLAND AND
Area Action Plans
VIP12- Valuation of Development Land
•Comparable Land Values
Valuation of Land for Affordable Housing
Financial Viability in Planning
• Assessment of viability
MARKET VALUE OF LAND- VIABILITY
FVIP (Draft) definition of site value is assessing viability:
“Site Value should equate to the Market Value subject to the
following assumption: that the value has regard to development
plan policies and all other material planning considerations and
disregards that which is contrary to the development plan.”
GROSS DEVELOPMENT VALUE
Re-cycling from right to buy transactions
Internal or cross subsidy
Usually calculated by discounted cash flow (DCF) approach- This
estimates the present worth of a property assuming projected future
net income and re-sale value.
Calculated using software such as Pamwin, but also purpose
designed toolkits such as Three Dragons, HCA DAT, or bespoke
• It focuses directly on the value of the property to the individual
• Very detailed and derive specific conclusions (Compare to
general approach practised in the Comparable Sales Method.)
• More complex and less intuitive than the Comparable Sales
Method. This is one of the reasons why it is often overlooked.
• Ignores the actual market prices for property.
• Highly sensitive to the assumptions made.
EXTERNAL SUBSIDY- GRANT FUNDING
2011-15 Affordable Homes Programme (Now limited grant
Use of public land
HCA Design & Quality Standards
EXERCISE 2: ASSESSMENT OF INTERNAL
Look at the exercise notes. This exercise goes through an analysis
of a real case to establish the level of internal subsidy.
Analyse the data.
Assess values being offered on a £/m2 basis.
What are your conclusions?
ESTABLISHING DEVELOPMENT COSTS
Net Sales v Gross Area
Code for sustainable homes
Other costs – contamination, off-site works, capital contributions
EXERCISE 3: ESTIMATING BUILD COSTS
Look at the exercise notes. This exercise goes through the estimation of build
costs, looking at base build costs, allowance for Code for Sustainable Homes
• GIA of the block of flats.
• GIA of the terraced housing.
• Base build costs.
• Costs to CfSH level 4.
• External costs.
• Total build costs.
• What is this as a £/m2 for the GIA of the individual units?
CIL & S106- NPPF
CIL is not charged on Affordable Housing units. It is charged on
other qualifying development, based on the net increase in new
development. Levy rates vary.
S106 is defined in NPPF as:
(i) necessary to make the development acceptable in planning
(ii) directly related to the development; and
(iii) fairly and reasonably related in scale and kind to the
EXERCISE 3- S106 REVIEW
What costs in this s106 tariff would you recommend should be
Which of these costs would now be covered by CIL?
ON COSTS / PROFESSIONAL FEES
Specialist professional fees
Current cost of borrowing
Strength of covenant to borrow
RECEIPTS / PAYMENTS
Private housebuilder position
Registered provider position
NPPF s54: “In rural areas, ... through rural exception sites ...
consider whether allowing some market housing would facilitate
the provision of significant additional affordable housing to meet
• HCA grant not normally available.
• Developer- Assume RP cross subsidising? May need to allow for
market developer with profit requirements.
• Benchmark/ Land value- What is a “competitive return”?
• NPPF S50 allows a
“...contribution of broadly equivalent value can be robustly justified
(for example to improve or make more effective use of the
existing housing stock).”
HCA DAT- Example for review
Argus, ProVal etc
REPORTING THE VALUE
• the basis of valuation must be clearly stated. Where a basis other
than Market Value is adopted this must be fully explained.
• all the assumptions made must be stated and, where appropriate,
comment made on the effect of those assumptions where they
• and the statement requiring comment on the valuation approach
is particularly important in these valuations.
Provide a copy of the appraisal and sensitivity analysis?
Negative value reported
Consider higher value alternative uses
Range of values?
NEW DELIVERY METHODS
Are there any?
Considered the background
Looked at the role of planning and particularly S106 agreements
Gone through the methodology with reference to VIP 12 and
Guidance note: Valuation of land for affordable housing
Considered the reporting structure
Concluded with a look forwards to potential changes