Development Economics a practical case study Kathleen Dunmore Jo Harrison Gary Tucker Paul Brunige Changing market economics • House prices (outside London and SE) are still lower.
Download ReportTranscript Development Economics a practical case study Kathleen Dunmore Jo Harrison Gary Tucker Paul Brunige Changing market economics • House prices (outside London and SE) are still lower.
Development Economics a practical case study Kathleen Dunmore Jo Harrison Gary Tucker Paul Brunige Changing market economics • House prices (outside London and SE) are still lower than in 2007 • East Midlands region of contrasts – Derbyshire Dales median house price over £200,000 – Bolsover median price under £100,000 • Development is stalling – East Midlands 15,720 units 2007/08 – 9,510 units 2011/12 DCLG table 253 New house prices by region Qtrly moving average 2007-2011 Source DCLG live table 506 £290,000 £270,000 £250,000 £230,000 £210,000 £190,000 £170,000 £150,000 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 London and SE 2009 SW and EA 2010 2011 All other regions Lessons from previous downturns 1930s house price crash • It takes several years for recovery to commence. 6 4 2 0 -2 -4 -6 -8 -10 -12 • In the 1990s house prices did not recover to their 1989 peak until 1997. 1931 • By 1938 house prices were still below their 1931 peak. 1932 1933 1934 1935 1936 1937 1938 a bumpy landing in the 1990s 25.0 20.0 • House prices fell in 4 of the 8 years following a downturn 15.0 10.0 5.0 0.0 -5.0 -10.0 1989 3 1990 1991 1992 1993 1994 1995 1996 1997 What is a normal market ? 1.00 0.50 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 0.00 1998 • Plan for what – and what price localism ? How often to review the plan 1=price 6 yrs 1.50 ago 1997 • But over a 6 year period price change can range from zero to house prices doubled 2.00 1996 • 2.50 1995 Fuelled by household growth and changing patterns of economic activity – spot winner and loser locations 1994 • House price change over 6 yrs 1993 Historic long term house price trend is upwards 1992 • Residual valuation model • Gross Residual = revenue – costs • Nett Residual (RV) = gross residual – (S106 contributions + CIL + affordable housing) • CIL Not negotiable • On-site S106 essential • All other requirements negotiable ?? 5 and now CIL Some sites are more equal than others • Land values are highest in the rural areas • And lowest in the market towns • Two 1,000 unit SUEs are proposed on the edge of the market towns. What will their values and costs be? South Northants 45 dph no grant £m £4.50 £4.00 £3.50 £3.00 £2.50 £2.00 £1.50 £1.00 £0.50 £0.00 Brackley Northern Hinterland Rural South Central Rural Northern Rural Towcester West 0% 10% 15% 25% 30% 35% 40% 50% Brackley Negotiating a stalled site • Understand what is viable • Be clear about what you want – and how much it costs • Try not to get into a position where there is only 1 possible site for development • Understand that very big sites have higher costs and lower values than small sites – but location is key • Development is a risky process • There are no “right answers” - only what works for you Principles of viability appraisal applied to specific schemes • Calculation 5 Year Land Supply !! – Compare revenues and costs – Arrive at a calculated residual value (RV) • Negotiation – Agree between parties what is a reasonable RV – Identify areas of uncertainty and agree how to share risk and reward – Set up appropriate legal mechanisms • Outcome – Improved mutual understanding and trust Radstone Fields S. Northamptonshire • 1,000 units, greenfield location edge of market town • Essential to 5 year land supply • Target – 40% affordable housing, – CSH level 3 – high design standards - kerb stones, street furniture – New secondary school – £1m+ town centre improvements – Total cost S106 and design £20m, infrastructure £20m (£40,000 per dwelling) How it worked out The deal • Agreed 22% AH, • S106 with phased review • All uplift in RV goes to local authority as additional affordable housing on site or as commuted sum • Phased review encourages early start on site Why it worked • Willing and informed landowner and developer • Political will • Officers actively involved in viability appraisal – not a black box • The right size of development with no punitive infrastructure requirements • In the right place – would it have worked in N Northants?