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Cornwall Council – Workshop for Councillors and
Development Industry
HOUSING STRATEGIC VIABILITY APPRAISAL
UPDATE – 27 January 2012
Jonathan Lee
Kathleen Dunmore
Lin Cousins
Opinion Research Services
Three Dragons
Three Dragons
Workshop - Three Parts
• Why do we need the study and how has it been done?
• What does the evidence tell us about Cornwall and its
housing markets?
• What are the options for taking policy forward?
1 Why and how of the study
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Context
Viability and the Community Infrastructure Levy
Principles behind the analysis
Key assumptions – market values matter
Role of land value comparators
Short hand
AH = affordable housing and
CIL = Community Infrastructure Levy
Context - What the study is for
• For affordable housing
– review targets (%)
– review site size thresholds
– test impact of different types of AH products
• Test combined impact of AH and CIL
• Assess if there should be different targets and/or different
thresholds and/or different levy rates for different parts of
Cornwall.
Context – Local policy
• Previously –different policies and approaches across Cornwall
• September 2010 - Affordable Housing Development Plan
Document (the DPD): Options Stage Consultation Draft.
• Urban areas - (including Truro, St Austell and Camborne-PoolRedruth) - 5+ dwellings and 40%
• Smaller towns and villages – 2+ dwellings and 50%
• Plus a strong emphasis on local connections and AH for rural
and coastal settlements
• Response to consultation – test for viability… …
• CIL – to be taken forward – sister study assessing non
residential uses
Community Infrastructure Levy or CIL
• Levy on development to help fund infrastructure
• CIL = £ per sq metre – 1 dwelling or more – NOT NEGOTIABLE
• Justification for the levy:
–Infrastructure needs and funding deficit (IDP)
–Viability assessment (the rate should not put at serious risk the
overall development in the area)
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Viability evidence  different rates for different areas / uses
Charging schedule: subject to consultation & Examination
Regulation 123 list: will set out what money will be spent on
Can collect in one place and spend in another
Remaining s106 contributions
CIL – examples from elsewhere (residential)
Local authority
Areas
Rates (per sq m)
Shropshire
Urban and rural
£40 and £80
Newark
6 zones e.g. ‘Newark
Rural North’
£0/£45/£55/£65/£75
Portsmouth
One
£105
Exeter
One
£100
Plymouth
One area – but by
type of unit e.g. >5
storeys
£0 - £50
Mid Devon
One
£113
Principles behind the viability assessment
RESIDUAL VALUE
Total development value (market and affordable)
Minus
Development costs (incl. build costs and return to
developer)
=
Gross residual value
Minus
CIL + planning obligations
=
Net residual value (available to pay for land)
When will development happen?
Residual value of the scheme - £s
• Negative residual value = No
• Positive value – is that enough? (‘willing land owner and willing
developer’)
OK
Benchmark value in £s
NOT
OK
Total amount of affordable housing and CIL
Benchmark land values
No guidance - no one information source
This is about benchmarks for policy making – land will sell for more or for less…….
Development industry told us benchmark values varied within Cornwall
Land value per
Hectare
High Value
Medium Value
Low Value
‘Urban’
£1.3m
£0.75m
£0.35m
Agricultural
£15/18,000
X24/20
£15/18,000
X20/17
£15/18,000
X13/11
£360,000
£300,000
£200,000
Greenfield
Assumptions used – market values
• Based on HM Land Registry data over 10 years (actual selling
prices)
• Historic data uplifted to current new build prices (2010 2011)
• Extreme transactions removed in each parish
• Current average newbuild house price calculated for each
parish
• Each parish allocated to a Price Zone: Zone 1-5 = most to
least expensive
Price
Zone
Category A
settlements
Category B
settlements
Rock with Tredrizzick
Gerrans/Portscatho; Fowey
1
St Ives
2
3
Falmouth; Truro;
Newquay
Bodmin; Penzance
4
5
Category C
settlements
(4 plus) St Austell
Camborne; Pool;
Illogan; Redruth;
Padstow; St Merryn/Shop;
Constantine
Mevagissey; Lostwithiel; Marazion
Launceston; Bude;
Saltash; Hayle;
Wadebridge
Callington; Camelford; Newlyn;
Perranporth; St. Columb Major;
Boscastle; Porthleven; Heamoor; St
Blazey/Par; St Just; Mullion; St Agnes;
Tintagel; Gunnislake; Kilkhampton;
Looe; Torpoint
Helston; Liskeard
Indian Queens with St Columb Rd &
Fraddon; Delabole
Assumptions used – market values
Assumptions used – market values
£K
Zone
1
Zone
2
Zone
3
Zone
4
Zone
5
Flat
SemiBungalow
detached
Terrace
Detached
1-bed
2-bed
2-bed
3-bed
4-bed
3-bed
2-bed
3-bed
4-bed
5-bed
195
220
240
275
340
260
305
390
425
550
175
200
205
235
295
225
265
315
350
450
150
170
170
195
240
200
230
270
300
390
105
120
140
160
195
175
205
230
255
330
85
95
115
130
160
145
165
180
200
260
Other assumptions used
• Build costs - £s psm (BCIS based)
– Houses - £998
– Flats 1-2 storey - £1,063
• Other assumptions
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–
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Professional fees
Internal overheads
Finance
Marketing fees
Developer return
Contractor return
10% of build costs
5% of build costs
6.25% of build costs
3% of GDV of market units
20% of GDV of market units
6% AH construction costs
Any questions/comments?
2.
What the evidence tells us about
Cornwall
The results
• Notional 1 hectare site (at different densities)
• (Over 40) case study sites (including large strategic
sites)
• Special case of rural developments
What we tested
• 20% to 50% AH (70% Affordable Rent/ 30% Shared Ownership)
• CIL - £40, £70, £100 psm
• Everything for each of the 5 price zones
Impact of 30% AH and £70 psm CIL
Affordable housing at 30% and CIL at £70 psm
Residual value (RV)
varies by price zone
Low value areas
would struggle with
this combination of
CIL and AH
Residual value in £sm
Higher density does
not always mean
higher RV
£4.00
£3.00
£2.00
£1.00
£0.00
20 dph
30 dph
40 dph
50 dph
-£1.00
-£2.00
Zone 1
Zone 2
Zone 3
Zone 4
Zone 5
70 dph
Impact of changing circumstances
We tested for different circumstances – e.g.
• market values +/- 10%
• 17% developer return
• alternative mixes of affordable housing.
Change in market value has biggest impact
But changing the mix of AH also has an impact - switching to social
rent
including more equity share
‘Rules of thumb’ about CIL rates
• Amount will vary with dwelling – using averages from this study
as a guide! With a CIL of £100 psm – levy for a market dwelling
– 2 bed flat =
– 3 bed terrace =
– 4 bed detached =
£5,600
£8,000
£12,500
• Some very rough sums…. (CIL at £100 psm again)
– 40 dph scheme with 25% AH = £240,000 per hectare
– For every 1,000 dwellings, with 25% AH, total CIL = £6m
– For every 1,000 dwellings, with 50% AH, total CIL = £4m
Taking each zone in turn
• RV per hectare – combinations of CIL and AH
• Compare with the relevant benchmark
• Use 40 dph - not necessarily density producing
greatest RV but reasonable for comparison.
High value area Zone 1
Residual value exceeds
benchmark across all
combinations of CIL and
AH tested.
High value area – Zone 2
Residual value exceeds
benchmark up to
around 40% AH and CIL
of £100 psm
St Ives
High value areas – Zones 1 and 2 – Case studies
• 3 x case studies – 8, 15 and 20 dwellings
(densities between 20 dph and 38 dph)
• 2 out of 3 viable at £100 and 35%+ AH (lessons
about type of dwelling mix)
• Supports assessment that these high value Zones
can support high % AH and CIL
Medium value area
– Zone 3
Residual value exceeds
benchmark up to
- 35% AH/£70 CIL or
- 30% AH/£100 CIL
Falmouth, Truro,
Newquay
Medium value areas – Zone 3 – Case studies
• 13 Case studies for 3 main towns
• 35% and £100 CIL above benchmark land value in most
cases (but not all e.g. 5 dw scheme in Falmouth)
• Large scale greenfield developments – have additional
costs but can achieve 35%/£100 – deferring payment of
CIL improves viability
Lower value area
– Zone 4
At 40 dph –
20%AH/£40 CIL
Lower density schemes
work better – at 20 dph
25% AH/£100 CIL or
30% AH/£70 CIL
Bodmin, Penzance
Launceston, Bude, Saltash,
Hayle, Wadebridge
(St Austell mid way 4 and
5)
Lower value areas – Zone 4 – Case studies
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Case studies from 5 – 500 units
Small urban sites – struggle to be viable at 25% AH and £40 CIL
BUT larger scale schemes work better e.g. 80 dw scheme in Bodmin
(benchmark = £200,000)
25% AH – CIL at £40
•
AH =
70/30
AH =
30/70
£100,000
£238,000
Again deferring CIL payment and alternative AH mixes make a
difference
Zone 5 = Camborne/ Pool/Illogan/Redruth, / Helston,
Liskeard
• Circumstances in which viable development is achievable
• Examples of small schemes in specific locations which
respond to local market conditions
• + Large scale development - market values are higher,
creating their own environment
Viability and rural areas
Looked at in two ways……
• With alternative %AH and CIL levels as for larger sites
• But focus on smaller sites – 1, 2, 4, 8, 15 and 20 dws
• Viability will depend on mix of units and location (price
zones)
• But small sites (tested down to 1 dwelling) – can deliver
viable development with AH and CIL
Viability and rural areas
Second type of testing –
Rural exception schemes with (just) enough market
housing to make viable (no subsidy, meets a local need,
local support).
Again viability will depend on i) type of units ii) location
(price zones) iii) type of AH
• In the high value areas – nil/limited requirement for
market housing
• But lower price zones, need more market housing
(c50%+)
(More detailed analysis to follow…..)
A quick review of the patterns of supply – 3 years of permissions
Small sites are very
important in the rural
areas – down to 1
dwelling
But Penzance, St Austell
and Bodmin - =>80%
dws in sites of <15 dws
Break for questions and
comments
What are the options for taking policy
forward?
Simple versus area specific
Single policy versus more complex arrangements?
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Single policy = Easier to understand
But how would it work?
Cornwall has a very diverse market
To be credible and meet CIL regs ……… say £0 CIL in CPIR and
£40 everywhere else + 30% AH (knowing that this is just the
start of a negotiation in large parts of Cornwall)
• More complex arrangements based on value areas – i) CPIR, ii)
lower value areas (urban versus greenfield as well), iii) medium
value and iv) high value ?
• Rural exception plus approach as norm
Area specific -options for each zone
Trade offs between CIL and AH - Various combination of options
but main ones are:
•Zones 1 and 2 – high priced rural areas = £100 psm CIL and 50% AH
(zone 2 – flexibility around mix of AH)
Zone 3 – 35%/£70 v 30%/£100 v 35% AH/£100 (flexibility around AH
mix)
Zone 4 (including St Austell) – urban = 20%/£40 and large strategic =
25%/£70 (or 25%/£70 and negotiate AH on smaller sites?)
•Zone 5 – urban = 20%/£0 (negotiable AH) and large strategic 20%/£40
(negotiable AH and lower CIL at £20?? – to test)
•Exception plus approach as a norm for Rural communities
Thresholds
• Where should AH and CIL be sought?
• CIL – no choice – Regs say applies to all dwellings (but
could be £0)
• AH - have choice about where to set thresholds
– 0 rural, 5 urban OR
– 0 everywhere
• (Technical point – I unit net)
Questions and comments