Two stories this week – and it’s only Wednesday - highlight the need to rethink and redefine how the financial viability of housing and regeneration projects is measured and used in crucial decisions that affect local residents’ lives and the future of their communities.
First in Manchester, where Kellen Homes has submitted a planning application to build 272 homes on the site of Manchester City’s former stadium, now a freight depot. Manchester City Council has committed to building 32,000 new homes by 2032, 10,000 of which will be affordable and 80% of which will be built on brownfield sites close to public transport.
The site for the Kellen application is brownfield and close to the city centre, but delivers no affordable homes. Why? Kellen says the site is 'heavily contaminated' which means the cost of developing the land for housing would be particularly high. According to a viability report submitted as part of the planning application, the developer would make a loss if 20% of the homes were to be affordable.
A second report popped up in Hackney, east London, where a local community group exposed the refusal by the Chair of the Planning Committee to share information about the viability of a proposed local development. A twitter exchange between the Morning Lane People’s Space and Hackney Councillor Vincent Stops, chair of the Planning Committee, revealed the latter’s refusal to share the developer’s viability assessment due to “commercial confidentiality “. Asked why commercial confidentiality was more important than transparency and public scrutiny, the Councillor replied “how else would they get the best deal from a commercial tender?”
I recently interviewed Emma Best, Deputy Chair of the London Assembly Planning & Regeneration Committee, and we discussed the role viability assessments play in blocking the development of affordable housing. Emma expressed dismay at the way viability is used as a get-out for developers in their engagement with LPAs, and in her view this is not only underpinning the paucity of new affordable housing but it’s also driving social segregation in the places where affordable housing is being developed .
So what is a viability assessment and how is it used in planning decisions?
According to the Royal Institute of Chartered Surveyors, the Viability assessment determines whether a site ‘s development is financially viable, by examining if and how the value generated by a development is more than the cost of developing it. This includes looking at the key elements of gross development value, costs, land value, landowner premium, and developer return.
And according to the Royal Town Planning Institute, viability plays an important role at the local plan level, where it is used as a tool to ensure planning policies are realistic and their cumulative cost does not undermine deliverability of the plan, taking account of a variety of factors, including the “reasonable expectations of landowners and developers”.
The National Planning Policy Framework contains Planning Viability Practice Guidance, which explains viability in the context of local plans:
“Development plans are important in ensuring high-quality, sustainable and viable development. To ensure the deliverability of the development, plans need to contain policies that, taken as a whole in the context of the development envisaged by the plan, are not likely to make the development required to deliver the plan financially unviable. At the plan level, viability is a tool that is used to ensure planning policies are realistic and their cumulative cost does not undermine deliverability of the plan, taking account of a variety of factors, including the reasonable expectations of landowners and developers …it is the responsibility of site promoters to engage in plan making; to take account of any costs, including their own profit expectations and risks; and ensure that proposals for development are policy compliant. At a site-specific level, viability can be used to assess the financial impact of planning policies on individual development schemes.”
The NPPF requires plans to set out the contributions expected from development. This should include setting out the levels and types of affordable housing provision required, along with other infrastructure (such as that needed for education, health, transport, flood and water management, and green and digital infrastructure) and emphasises that “such policies should not undermine the delivery of the plan.”
So if the role and importance of viability is codified in national and local planning frameworks, why isn’t it working to improve the quantity and quality of our housing developments and regeneration schemes?
5 years ago, Oliver Wainwright exposed what is now common practice in the use of viability assessments. In investigating the regeneration scheme at London’s Elephant & Castle, he engaged a local resident who only through FOI obtained a (heavily redacted) version of the developer’s “financial viability assessment” which, according to Southwark Council, justified why its own planning policy could not be met. His research describes how what was once a statutory system predicated on ensuring the best use of land has become, in many experts’ eyes, solely about safeguarding the profits of those who want to develop that land.
Several comments from the author and the experts he interviewed stand out and are relevant to the situations in Hackney and Manchester ( and probably many others too):
“A crucial failure of the current system is that developers’ viability assessments are regularly hidden from councillors and protected from public scrutiny on the grounds of “commercial confidentiality”. Revealing the figures, developers argue, would compromise sensitive trade secrets.”
“But these reports don’t tend to be scrutinised by planning officers, either. In the case of Southwark, as was embarrassingly revealed at tribunal, the council didn’t even have the right computer software to open Lend Lease’s viability assessment, let alone the expertise to interrogate it.”
“Viability assessments contain widespread disparity in valuation between estimated values and actual sales prices of proposed developments ….it is a flaw in the system …but we have to base what we do on evidence, so we have to go on current sales values and what we know today. It is a static assessment, so as soon as I do a viability assessment it’s already out of date by the next day. But that doesn’t mean we got it wrong.”
“Developers are always forecasting, otherwise they wouldn’t be building 15-year projects … the viability assessments build in an allowance for inflation of construction costs, but not sales values. It’s being worked out on today’s prices, but tomorrow’s costs, which makes a mockery of the whole thing.”
“Viability testing, the way it is structured at the moment, approaches the question from entirely the wrong end. The question from the council should be: ‘Is a viable development able to be built on this site?’ Not: ‘Is this specific scheme viable?’ Anything can be made to look unviable, but it doesn’t mean that viable alternatives aren’t possible.”
“These viability assessments conclusively prove that we cannot rely on developers to build affordable housing …and they’re standing in the way of other groups who want to build it – the community land trusts, housing associations, co-housing groups – by preventing them from getting access to the land. Instead, the industry is wilfully inflating land values and forcing local authorities to grant permission for things they don’t want.”
“Now that it’s been let in as a principle, viability is running riot through the entire system … it’s completely destroying the ability to build mixed communities, all on the grounds of spurious financial models. It’s critical that we develop the expertise to tackle it now – because this is going to be an almighty battle for years to come.”
Few deny the system is flawed and many have been looking to the Government’s Levelling Up & Regeneration Bill to address some of these loopholes, many of which were highlighted in the Government’s Planning Reform White Paper in 2020.
The Bill is currently in transit, debated at a second reading on Wednesday 8 June 2022 and sent to a Public Bill Committee which will scrutinise the Bill line by line and is expected to report to the House by Tuesday 20 September 2022.
In the meantime we must support community groups like Morning Lane People’s Space to challenge the planning committee on its lack of transparency on a local project’s viability assessment, and lobby the planning committee in Manchester to do the right thing with Kellen Homes and its proposal to build unaffordable homes there.
Clare Delmar
Listen to Locals
16 August 2022
