Key Issues to Consider in Viability

Preparing a strong viability case to support your planning application is not a straightforward process and requires the right type of support.  If you are considering submitting a viability case in respect of your scheme, you may want to seek advice from a specialist viability consultant who can help you and who will consider the following key issues.

Site value

What you paid for the site may not always be considered by the local planning authority’s assessors to be the site’s value.  This is important because the site’s value will be a key factor or ‘Benchmark’ in determining whether your development proposal is viable or not.  A number of options will be considered in determining this Benchmark Land Value, including the site’s existing use and any alternative use for which the site has consent or is allocated.

If your scheme generates a lower Residual Land Value (RLV) than the Benchmark Land Value (BLV) then the scheme is deemed to be unviable and some or all of the planning obligations may be avoided.

Abnormal costs

The main reason why many sites are unviable are the abnormal costs of development associated with the site or use.  The most common abnormal costs are those relating to ground contamination (common in brownfield sites), ground conditions (especially drainage) and heritage issues (such as the condition of a Listed Building or archaeological remains).

It is possible to identify some abnormal costs through appropriate due diligence work such as intrusive surveys and seek to reduce the purchase price on the basis of such costs.  However, there are circumstances when abnormal costs are unforeseeable until works are actually underway or where an allowance has to be made for anticipated abnormal costs which would otherwise result in the site having a theoretical negative RLV.

In this instance, it would be possible to make a case for those abnormal costs to be taken into account in determining the level of planning obligations that the scheme can afford to pay.

Market failure

Another key determinant of project viability is the values that are achievable in the local area.  Where a local housing market is effectively ‘failing’ it is likely that values will not be high enough to cover the development costs, allowing for a reasonable level of developer’s profit.  In this case, the local planning authority might have to accept that some or all of the planning obligations that it is seeking cannot be viably delivered, i.e. affordable housing.

Assess the risk

The amount of risk involved in a project will determine the amount of profit that a developer can be allowed as part of a viability case.  Where a site has high abnormal costs of development or there is market failure, the level of profit allowed should be higher.

Profit levels allowed typically range between 15-20% of Gross Development Value (GDV). Knowing how and where to argue for higher profits is something that a good viability consultant should do.

Community Infrastructure Levy and Section 106 Agreements

As part of most schemes, developers are required to deliver planning obligations to mitigate and offset the impacts of their proposal.  This is usually done via a Section 106 (S106) Agreement or through a Community Infrastructure Levy (CIL) charge, if one has been adopted.  The difference between these is that CIL is a statutory charge and is effectively non-negotiable, whereas S106 is negotiable where viability is proven to be an issue.

A good viability consultant will be experienced at negotiating the S106 obligations to obtain a reduction in them where viability is proven to be an issue.  Matters such as open market housing mix, affordable tenures and green infrastructure may also need to be negotiated where viability is an issue.

Help and expertise

RCA Regeneration provides wide-ranging planning and development consultancy advice and support.

We are here to help.

To ensure that your site is viable, call us today on 01905 887686 or email info@rcaregeneration.co.uk