Testing Viability

Jayne Lomas 16 th October 2012

Today’s presentation….

 Context - Planning and viability in 2012  HCA – Our business  Area wide testing  Site specific testing  HCA support and advice.

NPPF launch – Plans should be deliverable

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Further planning reform Harman Advice on viability testing of Local Plans.

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The Balancing Act

      Local expectation Economic reality Political change Local plan viability Site specific Larger phased sites  DELIVERY

HCA : Our business

Improving quality and standards Delivering our programmes Places that work Meeting housing needs

Housing Delivery

Increasing housing supply Effective use of public sector land

HCA: As an investor

  Affordable Housing Programme 2011 15 £4.5bn (£2.3bn existing commitments)  Meeting locally identified needs  FirstBuy support for c.10,000 FTBs access affordable home ownership

“Helping deliver the Government’s ambition to build up to 170,000 new high quality affordable homes by 2015”

HCA : As a land owner/agent

HCA Land

 Existing P&R commitments  Accelerated disposal of land

Other government land

 Technical support to government departments

Economic Assets Programme

 Over 300 sites transferred £300m – value of  Nationally important sites – Enterprise Zones  Local stewardship arrangements

HCA : Why viability test?

     To make sure we can deliver our land disposal plan To ensure we get the best value for our land To see that our investment goes where it is needed most To make sure that our investment works as hard as it can – maximise recovery To select delivery partners (DPP)

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Think like a developer …..

What is the total amount I could be paid for this development when completed?

Gross development value.

 What will it cost me to construct the development including site set up?

Overall build cost.

 Any additional construction costs?

Infrastructure/site abnormals?

 What additional obligations will I have to meet?

S106/CIL/Affordable housing

 How will I pay for this development work?

Finance costs and cashflow impact

 What costs will I have to pay to sell the units?

Marketing and legal costs

 How can I satisfy my shareholders?

Developer’s return or overheads and profit.

 What can I afford to pay for the land?

Residual l and value

The secret of viability testing

   Assumptions, assumptions, assumptions Comparators Benchmarks  Do ( as much as you can) yourself !

Income assumptions

 The overall price at which the developer calculates he can sell on the land and new buildings.  Ultimately the ‘fixed cake’ from which everything has to be paid.

 For sales values look at local market evidence. Hometrack.

 Sales values used should be forecast to the proposed sales period – could be several years  Look at sales rates and the impact this has on cashflow. .

Expenditure assumptions 1

Unit Build costs

 The total cost of constructing the units  Building Cost Information Service (BCIS) from RICS – Definition • ‘substructure & superstructure but not infrastructure’ • ‘back to the pavement but no further’ – Limitations • • sample size, Build scale  Volume house building – Cost efficiencies of a standard product ?

– Supply chain benefits  Quality standards - Code for Sustainable Homes (CSH) & Zero Carbon, Life time homes  Contingency????

Expenditure assumptions 2

        Prelims and site set up – depends on length of contract External works Infrastructure Abnormals (for the type of scheme….) Design fees Finance fees Marketing costs and incentives Overheads and profit

Expenditure assumptions 3

Regulatory burden?

   S106 CIL Affordable Housing – tenure mix, numbers

HCA : Our Viability tools

     Designed to be neutral, open and transparent Available free from our website No ongoing license fees Guidance online Specific support available via email helpdesk www.homesandcommunities.co.uk/ourwork/viability-planning-tools

HCA : Area wide viability model

      A transparent, independent tool The AWVM is simple and can be used for consultation events Can be used for plan making purposes over many years Can be used throughout changes in teams/consultants Land value is calculated as one of the outputs and is not an input derived by the land owner or others. It will ‘goalseek’ to find the viable level of Affordable Housing given the assumptions made

HCA : Development appraisal tool

      Site specific viability tool (DAT) Residual value model Based on assumptions Advice on sourcing robust input data Allows benchmarking between bids and sites.

Derivations for deferred receipt – Build Now Pay later

HCA : ATLAS

       Specialist support on larger sites (ATLAS) Usually at the request of the LPA Housing led development sites +500 units Mixed use complex schemes Any stage of delivery Linked to a site or delivery proposal Non – project support