Transcript Guest speaker: Lizzie Cullum (Savills)

Guest speaker: Lizzie Cullum
(Savills)
Viability Testing of CIL and Local Plans
Effective Practice
Lizzie Cullum BA (Hons) MRICS
Surveyor, Cambridge Development
11 February 2014
savills.com
Contents
The emerging CIL picture
Aligning objectives
Balancing risk
Achieving consistency – benchmarking CIL
savills.com
Savills
CIL Map
Implemente
d
CILs
Source: Savills
The national position
47 • Committed to CIL
75 • Producing their evidence base
67 • Preliminary Draft Charging Schedule stage
27 • Draft Charging Schedule stage
36 • Examination stage
31 • Charging Schedule Adopted or Implemented
Source: Savills, 24 January 2014
Influencing charging schedules: Key observations
 Viability
 Differential rates
 Factoring Section 106
 Risk to the delivery of windfall development
 Progression of CIL
 Delays
CIL Rate (% of sales value)
Max Resi Rate
25%
Source: Savills
Min Resi Rate
30%
Draft Consultation
Preparing evidence/Charging Schedule
£800
15%
£600
10%
£400
5%
£200
0%
£0
Local Authorities with a published rate of CIL
Relative Sales Value per sq.m.
20%
Blaenau Gwent
ondda Cynon Taff
Mansfield
Rossendale
Caerphilly
Carlisle
West Lindsey
Rotherham
Tameside
Fenland
Allerdale
Wakefield
Preston
Powys
Flintshire
elford and Wrekin
Wellingborough
t Northamptonshire
South Derbyshire
Waveney
kley and Bosworth
Rugby
Gloucester
Leeds
Ribble Valley
Dover
Ryedale
Worcester
Huntingdonshire
Medway
Cheshire East
Broadland
South Lakeland
Derbyshire Dales
St Edmundsbury
Wiltshire
Braintree
ntral Bedfordshire
Harlow
West Dorset
Canterbury
Basildon
Dartford
th Cambridgeshire
bridge and Malling
West Oxfordshire
West Berkshire
Broxbourne
Tunbridge Wells
Tandridge
eigate & Banstead
Sevenoaks
Greenwich
Hertsmere
Harrow
Elmbridge
Lambeth
Islington
CROSSRAIL
Wide variation in the emerging rates of CIL
Relative Sales Value (RHS)
Adopted
£1,200
Submitted for examination/examination closed
Preliminary Draft Consultation
£1,000
Synergy of objectives
Local authority
Developer
Land to come
forward for
development
Land to come forward
for development
to meet Local Plan
objectives including
housing targets
to deliver the return
on capital expected
by corporate
investors
The third dimension
Local authority
Developer
Land to come
forward for
development
Land to come forward
for development
to meet Local Plan
objectives including
housing targets
to deliver the return
on capital expected
by corporate
investors
Landowner
Return to landowner for
it to be released for
development
What is a competitive developer return?
House builder objectives have shifted from
volume to margin, to meet market expectations
Competitive return across the cycle
= 20%+ margin on revenue
across the market cycle
Does CIL come out of land value?
Residual land
value that can
be created
YES
Return to the
landowner
NOT IF the
return is less
than threshold
land value
Is CIL policy designed to push down land value?
Not in the NPPF
To ensure viability, the costs of any requirements likely to be applied to
development, such as requirements for affordable housing, standards,
infrastructure contributions or other requirements should, when taking account of
the normal cost of development and mitigation, provide competitive returns to a
willing land owner and willing developer to enable the development to be
NPPF (para 173)
deliverable.
Is CIL policy designed to push down land value?
Not in the CIL Guidance
Charging authorities should avoid setting a charge right up to the margin of
economic viability across the vast majority of sites in their area.
CIL Guidance Apr 2013 (para 30)
Is CIL policy designed to push down land value?
Not in the Harman Guidance
In setting out a Threshold Land Value, it is important to avoid assuming that land
will come forward at the margins of viability.
To guard against this, planning authorities should consider incorporating an
appropriate ‘viability cushion’ in the testing in order to ensure that the sites upon
which the Local Plan relies in the first five years will, on the balance of probability,
come forward as required.
Harman Guidance Jun 2012 (page
30)
Both RICS and Harman guidance are based on
market evidence of land value
Source: Savills
Balancing risk
 Historic delivery
 Historic Section106 achievement
 Local Plan policy costs
 Benchmark land value
 Land supply characteristics and profile
 Viability buffer
What is the delivery context?
Is delivery meeting housing targets?
Evidence of historic Section 106 payments is relevant if:
 the site has been delivering recently
 the context in which delivery was viable is properly understood
 overall delivery is meeting housing targets
What is the land supply?
 What land underpins the Local Plan?
 Is there a 5 year land supply identified?
 What types of site make up most of the Local Plan land supply?
 What types of site?
 In which local sub-markets?
The viability conclusions should relate back to these
answers
Applying the viability buffer
‘Generosity’ on all assumptions including contingency
v
Apply a % reduction to a theoretical maximum CIL rate
v
Set land value to include a viability cushion
Section 106 and CIL
 Explicit policy on the balance between Section 106 and CIL
 Draft regulation 123 list – what will be excluded from Section 106 funding?
 Proposed changes to the Regulations – what will be excluded from
Section 278 funding?
 The proposed changes to the regulations will tighten the restriction on
pooling of Section 106
 Must be allowed for within the viability appraisals
Residential CIL Rate (per m2)
Consistency is key
£250
£200
£150
£100
£50
£0
Min
Max
Flat Rate
Policy choices have a cumulative impact on viability
Source: Savills
Key drivers in the benchmark model
Values
S.106
Viability
Costs
Affordable
Housing
There is more capacity for CIL and Section 106
funding of infrastructure in higher value markets
Viable level of CIL and Section 106 (£ per plot)
50 000
Assuming 30% affordable housing policy
40 000
30 000
20 000
10 000
0
150
Source: Savills
175
200
225
250
275
300
New homes sales value (£ per sq.ft.)
325
350
There are trade-offs between the viability of CIL,
Section 106 and affordable housing policy
Affordabl
e housing
Viable level of CIL and Section 106 (£ per plot)
50 000
0%
40 000
10
%
30 000
20
%
20 000
30
%
40
%
10 000
50
%
0
150
Source: Savills
175
200
225
250
275
300
New homes sales value (£ per sq.ft.)
325
350
There are trade-offs between the viability of CIL,
Section 106 and affordable housing policy
Affordabl
e housing
Viable level of CIL and Section 106 (£ per plot)
50 000
0%
40 000
Lower affordable housing
policies unlikely to apply in
these markets
10
%
30 000
20
%
20 000
30
%
40
%
10 000
50
%
0
150
Source: Savills
175
200
225
250
275
300
New homes sales value (£ per sq.ft.)
325
350
In most markets, pricing potential for high volume
sales is less then £250 per sq.ft.
London
South
Midlands
North
Housing Completions (Apr 2012 - Mar 2013)
30 000
25 000
20 000
15 000
10 000
5 000
0
up to 150 150-175 175-200 200-225 225-250 250-275 275-300 300-325 325-350 more than
350
New build sales value potential for volume sales (£ per sq.ft.)
Source: Savills, using Hometrack sales value data
Most of the supply shortfall is in London and its
connected markets
Net additional dwellings/ households
Supply 2012/13
60 000
50 000
40 000
30 000
20 000
10 000
0
Source: CLG, ONS
Household projections
More allocation of land in higher value markets
would allow greater funding of infrastructure from
land value
50 000
25%
Lower affordable housing
policies unlikely to apply in
these markets
40 000
20%
30 000
15%
20 000
10%
10 000
5%
0
0%
150
Source: Savills
175
200 225 250 275 300 325
New homes sales value (£ per sq.ft.)
350
Affordabl
e housing
% of housing completions 2012/13, out of
London
Viable level of CIL and Section 106 (£ per plot)
Focusing on the south of England, outside London
0%
10%
20%
30%
40%
50%
Where
homes
are built
What are the implications?
 Some authorities have set unviable rates
 Delivery of affordable housing should be closely monitored
 Early adopters may wish to review rates
 Local Plan policies should be checked for viability and soundness
 Plan policies should be adjusted where necessary
 Seek consistency to avoid unintended market variations across broader
areas
 Our report is intended as a guide...
CIL Rate (% of sales value)
Max Resi Rate
25%
Source: Savills
Min Resi Rate
30%
Draft Consultation
Preparing evidence/Charging Schedule
£800
15%
£600
10%
£400
5%
£200
0%
£0
Local Authorities with a published rate of CIL
Relative Sales Value per sq.m.
20%
Blaenau Gwent
ondda Cynon Taff
Mansfield
Rossendale
Caerphilly
Carlisle
West Lindsey
Rotherham
Tameside
Fenland
Allerdale
Wakefield
Preston
Powys
Flintshire
elford and Wrekin
Wellingborough
t Northamptonshire
South Derbyshire
Waveney
kley and Bosworth
Rugby
Gloucester
Leeds
Ribble Valley
Dover
Ryedale
Worcester
Huntingdonshire
Medway
Cheshire East
Broadland
South Lakeland
Derbyshire Dales
St Edmundsbury
Wiltshire
Braintree
ntral Bedfordshire
Harlow
West Dorset
Canterbury
Basildon
Dartford
th Cambridgeshire
bridge and Malling
West Oxfordshire
West Berkshire
Broxbourne
Tunbridge Wells
Tandridge
eigate & Banstead
Sevenoaks
Greenwich
Hertsmere
Harrow
Elmbridge
Lambeth
Islington
CROSSRAIL
We are not yet seeing a common approach that
reflects national policy consistently
Relative Sales Value (RHS)
Adopted
£1,200
Submitted for examination/examination closed
Preliminary Draft Consultation
£1,000
Visit www.savills.co.uk/cil
savills.com