G r e at er L o ndo n Au t h or it y 2013 GLA Strategic Housing Land Availability Assessment Viability Assessment Final Report A p r i l 2 01 4 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 GREATER LONDON AUTHORITY 2013 SHLAA Viability Assessment Final Report April 2014 Prepared by: Three Dragons David Lock Associates TradeRisks Ltd Three Dragons, David Lock Associates and TradeRisks Ltd 1 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 CONTENTS: 1.0 PAGE: EXECUTIVE SUMMARY 3 PURPOSE OF THE STUDY AND REPORT 5 STRUCTURE 2.0 POLICY CONTEXT 6 3.0 METHODOLOGY 11 4.0 VIABILITY TESTING: RESULTS FOR THE 1HA 21 TILE 5.0 VIABILITY TESTING: THE CASE STUDIES Three Dragons, David Lock Associates and TradeRisks Ltd 26 2 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 EXECUTIVE SUMMARY Purpose of the study 1 This viability study was commissioned by the GLA to assess the viability of the 2013 SHLAA and to provide an overview and quantitative assessment of the current housing market in London, identifying those areas which are the most buoyant in terms of housing delivery and those which are considered to be the least viable, with some understanding of expected future trends. 2 It does this through a combination of analysis of a specimen 1 ha site/tile for each London Borough developed at a density which is appropriate to that Borough and assessment of 40 case studies in 8 London Boroughs, 5 case studies per Borough. The analysis was carried out using a residual valuation approach and was based on current policy levels of affordable housing and CIL/s106 requirements and London Plan (FALP) proposed development standards. 3 The analysis is based on costs and prices prevailing during 2013, although we sensitivity test the implications of both a rise and a fall in house prices and rents relative to build costs. Results for the 1 ha tile – all London Boroughs 4 We modelled a specimen 1 ha site/tile in each London Borough at a density which is typically achieved in that Borough and which produced the most viable results of the 3 densities tested (320 dph, 160 dph and 80 dph). 5 At Borough-wide average house prices and build costs development at 320 dph achieved land values in excess of benchmark in 15 London Boroughs. Development at 160 dph was viable at above benchmark land values in 3 London Boroughs and development at 80 dph was viable at above benchmark land values in 15 London Boroughs, 6 Grant was required to achieve the benchmark residual land value in three 80 dph Boroughs (Barking and Dagenham, Bexley, Sutton) and one 320 dph Borough (Brent). In the majority of London Boroughs at the mix of affordable housing modelled grant was not necessary in order to achieve benchmark residual land value at the policy compliant level of affordable housing. 7 There were no London Boroughs where residential development at policy compliant levels of CIL and affordable housing did not achieve the industrial benchmark value, although in a very small number of cases grant was required to do so. Three Dragons, David Lock Associates and TradeRisks Ltd 3 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 The case study Boroughs 8 We modelled 5 case studies in 8 Boroughs. These Boroughs (with the exception of Hounslow) were chosen because they had not achieved target numbers of new homes over the three years to 2011/12. Hounslow was included as a case study Borough in response to comments from the stakeholder workshop that the sample of Boroughs was biased to East London. 9 Compared with the industrial benchmark land value identified for each Borough, based on the assumptions set out in Section 3, 22 out of 40 case studies achieved a residual value above the threshold land value for the base case. 5 further case studies achieved a residual value above the threshold land value once grant (at £30,000 per dwelling) was taken into account. 10 Based on the assumptions set out in Section 3 there were 13 case studies which did not achieve a viable residual land value. 8 of these case studies were concentrated in two Boroughs, Barking and Dagenham and Newham. The other 5 case studies were distributed between three Boroughs, Tower Hamlets, Hounslow and Croydon. 11 Key factors influencing viability were found to be: House prices (which can vary considerably at local level) Density/storey height – where apartment blocks above 5 and 11 storeys incur a step change in build costs and also an increase in non saleable floorspace – both of which reduce RLV. As a general rule, lower density schemes in lower value areas produced higher RLVs than did higher density schemes. 12 The case studies suggest that some form of development will be viable in almost all Boroughs. The possible exception is Barking and Dagenham. Our analysis suggests that in this case there is a need for review of the type of schemes coming forward and the scale of planning obligations (including affordable housing) that is being sought and/or an increase in the level of subsidy for affordable housing that is available. Any such review will need to take into account planned improvements to public transport accessibility and their potential impact on house prices and hence viability. 13 It should be noted that the study focussed on possible downside scenarios regarding future house prices because they pose a potential threat to viability and delivery of the London Plan, whereas rising house prices should improve these factors. Three Dragons, David Lock Associates and TradeRisks Ltd 4 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 1.0 PURPOSE OF THE STUDY AND REPORT STRUCTURE 1.1 The London Strategic Housing Land Availability Assessment (SHLAA) provides essential information about the capacity to address new housing requirements in London. The SHLAA will inform Further Alterations to the London Plan and Local Plans (FALP). 1.2 Specifically this viability study is to provide: an overview and qualitative assessment of the current housing market in London, identifying those areas which are the most buoyant in terms of housing delivery currently, those which are considered to be the least viable, with some understanding of expected future trends a SHLAA viability assessment in the form of a set of detailed viability assessments for a number of SHLAA sites in areas that are considered the least viable for housing development, but have a significant amount of potential housing capacity. 1.3 We have done this by identifying and viability appraising a typical notional 1 ha site/tile in all London Boroughs and by looking in more detail at a cross section of actual case study sites in a selection of 8 Boroughs where there is a current significant shortfall in housing delivery. All sites were viability appraised using data from 4th Quarter 2013 and the viability appraisal was carried out using a pre-release copy of the GLA viability toolkit 2014 version. However data on build costs, wider development costs, house prices and affordable rents were based on information collected specifically for this study and not on the benchmark values shown in the GLA toolkit. Key assumptions underpinning the analysis were tested at two stakeholder workshops both held on 31 October 2013 and jointly organised by the GLA and London First, We are extremely grateful for their support and for that of participants in the workshops. 1.4 In terms of report structure Chapter 2 sets out the policy context for this study, Chapter 3 summarises the methodology adopted for the viability appraisal, Chapter 4 reports on results for the 1 ha tile, looking across all London Boroughs. Chapter 5 summarises findings for the 8 case study Boroughs. Further details of key assumptions and outputs are provided in the Appendices. Three Dragons, David Lock Associates and TradeRisks Ltd 5 GLA SHLAA 2013 2.0 Viability Assessment Final Report – April 2014 POLICY CONTEXT Role of the SHLAA within the London Plan 2.1 The National Planning Policy Framework (NPPF) requires local planning authorities to prepare a Strategic Housing Land Availability Assessment (SHLAA), “ ……to establish realistic assumptions about the availability, suitability and the likely economic viability of land to meet the identified need for housing over the plan period.” (Para 159). 2.2 Along with the Strategic Housing Market Assessment, which sets out an estimate of London’s current and future housing requirements, the SHLAA provides the evidence for the housing targets in the Further Alterations to the London Plan (FALP) and Local Plans. 2.3 The current London Strategic Housing Land Availability Assessment (SHLAA) 20131 has been prepared in accordance with national guidance. The SHLAA identifies the future land supply for London and includes sites with planning permission and sites identified in Borough development plans together with other potential housing sites. It has been prepared by the GLA in co-operation with the London Boroughs and is based on an established methodology. 2.4 The SHLAA notes that, to some extent, viability is taken into account by Boroughs in their assessment of sites, although the approach to this can vary between Boroughs. To be robust, the SHLAA requires a consistent understanding of viability which this study provides. 2.5 Prior to the 2013 SHLAA, a SHLAA/ Housing Capacity Study was undertaken in 2009. The results of this study provided the basis for the housing targets in the 2011 London Plan. The approach to the 2013 SHLAA largely follows that of the 2009 study which included a separate viability study. The SHLAA was found to be sound at EIP. 1 Greater London Authority, January 2014 Three Dragons, David Lock Associates and TradeRisks Ltd 6 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 National Policy Context Relevance of viability and deliverability 2.6 The NPPF, in summary, requires planning authorities to ensure there is a supply of deliverable sites sufficient to provide five years worth of housing a supply of specific, developable sites or broad locations for growth, for years 6-15 years (see paragraph 47 of the NPPF for the full text). 2.7 Deliverable is defined in the NPPF as a site that is; “……….available now, offers a suitable location for development now, and be achievable with a realistic prospect that housing will be delivered on the site within five years and in particular that development of the site is viable.” 2.8 Developable is defined as a site that is: “……. in a suitable location for housing development and there should be a reasonable prospect that the site is available and could be viably developed at the point envisaged.” 2.9 Therefore to be deliverable or developable, sites identified in the future land supply must be viable. 2.10 The recently published National Planning Practice Guidance2 (NPPG) re-iterates that the judgement about whether a site can be considered deliverable relies on an assessment of its suitability, availability and achievability. A site is considered achievable: “…………….where there is a reasonable prospect that the particular type of development will be developed on the site at a particular point in time. This is essentially a judgement about the economic viability of a site and the capacity of the developer to complete and let or sell the development over a certain period.” 2 Published by DCLG 6 January 2014 Three Dragons, David Lock Associates and TradeRisks Ltd 7 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Defining viability 2.11 The NPPF defines viability in terms of providing, “competitive returns to a willing land owner and willing developer to enable the development to be deliverable.” (para 173). This approach is supported by the NPPG. 2.12 In assessing viability, it is important that all requirements of a plan (including affordable housing and infrastructure requirements) are taken into account. 2.13 A further definition of viability is found in “Viability Testing Local Plans - Advice for planning practitioners” 3 . The Foreword to the Advice for planning practitioners includes support from DCLG, the LGA, the HBF, PINS and POS4. 2.14 The Advice’s definition of viability is set out below and explains how the definition applies for plan making purposes (page 14). 3 The guide was published in June 2012 and is the work of the Local Housing Delivery Group, chaired by Sir John Harman, which is a cross-industry group, supported by the Local Government Association and the Home Builders Federation. 4 Acronyms for the following organisations - Department of Communities and Local Government, LGA Environment and Housing Board, Home Builders Federation, Planning Inspectorate, Planning Officers Society Three Dragons, David Lock Associates and TradeRisks Ltd 8 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Scale of the evidence required 2.15 The NPPG notes that the scale of evidence required for testing the viability of plans should be proportionate and that: “ Assessing the viability of plans does not require individual testing of every site or assurance that individual sites are viable; site typologies may be used to determine viability at policy level. Assessment of samples of sites may be helpful to support evidence and more detailed assessment may be necessary for particular areas or key sites on which the delivery of the plan relies.” 2.16 The testing approach adopted for the assessment of the GLA’s SHLAA is consistent with the Guidance. The method adopted is described in detail in the next section. Threshold land values 2.17 A key point in assessing viability is the establishment of a benchmark land value. The NPPG states that “Central to the consideration of viability is the assessment of land or site value. The most appropriate way to assess land or site value will vary but there are common principles which should be reflected. In all cases, estimated land or site value should: reflect emerging policy requirements and planning obligations and, where applicable, any Community Infrastructure Levy charge; provide a competitive return to willing developers and land owners (including equity resulting from those building their own homes); and be informed by comparable, market-based evidence wherever possible. Where transacted bids are significantly above the market norm, they should not be used as part of this exercise. 2.18 We have taken these points into account in our approach to this study. 2.19 The examination for the London-wide CIL considered the issue of what is an appropriate threshold land value. The Inspector’s report comments that “…….the price paid for development land may be reduced [so that CIL may be accommodated]. As with profit levels there may be cries that this is unrealistic, but a reduction in development land value is an inherent part of the CIL concept. It may be argued that such a reduction may be all very well in the medium to long term but it is impossible in the short term because of the price already paid/agreed for development land. The difficulty with that argument is that if accepted the prospect of Three Dragons, David Lock Associates and TradeRisks Ltd 9 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 raising funds for infrastructure would be forever receding into the future. In any event in some instances it may be possible for contracts and options to be re-negotiated in the light of the changed circumstances arising from the imposition of CIL charges. (para 32 – emphasis added). Three Dragons, David Lock Associates and TradeRisks Ltd 10 GLA SHLAA 2013 3.0 Viability Assessment Final Report – April 2014 METHODOLOGY Theory of residual valuation 3.1 For this study viability was assessed using a residual valuation approach (see Chart 3.1 below), This is in line with the recommendation of the Harman report Most existing models use a residual land value methodology to assess viability. Here, the difference between the value and costs of development are compared with land values to determine whether development will be viable. We recommend that the residual land value approach is taken when assessing the viability of plan-level policies . . . . There is a need to agree on the inputs that will be used for each of the elements of the viability equation: gross development value, build costs, land costs, profit and policy requirements. Partners should openly discuss and agree the inputs that will be used; if a consultant’s approach is being used, their proposed inputs should be made available to stakeholders and revised if necessary. (Viability testing local plans p25) Chart 3.1: Basic outline of elements required for a viability assessment 3.2 This approach was tested with the stakeholder workshops and is directly comparable with the approaches taken to viability appraisal for the London Plan, the London-wide CIL and the various Borough Local Plans and CIL viability appraisals. Deriving benchmark land values 3.3 We have taken benchmark land values from the various CIL viability studies which have been carried out by individual Boroughs since 2010. The land values used (or Three Dragons, David Lock Associates and TradeRisks Ltd 11 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 the approach used to derive them) have so far been found sound at Enquiry. We have therefore used these land values as the basis for an assessment of site viability, expecting that Boroughs will set affordable housing and CIL policies at levels which enable these land values to be achieved in the majority of cases – i.e. that policy has been based on the assumption that, as specified in the NPPG “Plan makers should not plan to the margin of viability but should allow for a buffer to respond to changing markets and to avoid the need for frequent plan updating” 3.4 CIL viability studies typically give more than one benchmark land value based either by area (e.g. high value or low value area) or by existing use (e.g. office or industrial land). Where there is more than one benchmark land value we show the range of benchmark land values and compare these with the actual land values achieved from residential development. 3.5 Where a Borough does not have a CIL viability study we have extrapolated from a comparison of Boroughs with similar house prices and industrial rent levels to identify a comparator Borough whose benchmark land values as specified in the CIL viability study have been used. This applies in the case of: Ealing comparator Borough Tower Hamlets Islington5 comparator Borough Wandsworth Redbridge comparator Borough Brent, City of London comparator Borough Westminster, minus 10% House Prices 3.6 The primary data source was the published Land Registry Price Paid for newbuild flats sold between July 2012 and July 2013 to provide an estimate for January 2013 newbuild values for each Borough6. There were 9,260 sales of new dwellings recorded for London in this period, of which 8,130 were flats. The new house numbers in each Borough were too small and the houses too variable in size to provide a statistically valid result. The January 2013 flat value estimates were then uplifted to October 2013 using the Land Registry price inflation figure for each Borough. The uplifted estimates were then disaggregated into dwelling size by number of bedrooms and type (flat, 5 Islington has a recent CIL viability study but this does not provide Borough or area based land value benchmarks, but instead is based on site specific analysis. 6 Published Land Registry data excludes transactions between companies, discounted sales such as Right To Buy or shared ownership, auctions and sales of repossessed stock. Three Dragons, David Lock Associates and TradeRisks Ltd 12 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 terrace, semi, and detached) using ratios derived from sales described in more detail in Rightmove and Zoopla. These results were used in the 1 ha tile analysis. 3.7 The same methodology was used for each sample site. The relevant Postcode Sector (eg SE1 7xx) was used to provide comparative recent new flat sales values from the Land Registry Price Paid data. For some sample sites there were insufficient or no relevant comparators, so similar dwellings in adjoining Postcode Sectors were identified. An allowance for site location factors such as riverside views, town centre, neighbourhood tenure mix, was made. Affordable Housing 3.8 For this study we have used the individual London Borough Plan policy mix of market to affordable housing and assumed that within the affordable housing 60% would be an Affordable Rent (AR) product with a rent averaging 65% of market rent, and 40% would be shared ownership purchased at a 40% share. More detailed information about key modelling assumptions on affordable housing revenues is set out at Appendix 3. 3.9 With regard to the availability of grant the latest housing Funding Prospectus for 201518 states “In London, the expectation is that no affordable home delivered as S106 should require any grant. The capitalised rental stream and cross subsidy from shared ownership or other low cost home ownership products should be the only contribution to the subsequently delivered affordable homes”. However it goes on to set out it what circumstances grant can be justified, concluding “The GLA will only consider these proposals for grant where it can be demonstrated that 3.10 The scheme is unviable It delivers additional affordable homes It accelerates the delivery of the affordable housing We have therefore modelled the availability of grant, taking into account its potential positive impact on scheme viability and deliverability. Build Costs 3.11 Base build costs have been taken from the Building Costs Information Service (BCIS). The values used are taken from Q4 2013 and used the most up to date BCIS data (i.e. from the past 5 years). Median values for a variety of dwelling types were sourced and adjusted for each Borough, using BCIS location factors. 3.12 An additional 15% was added to the base build costs to allow for external works, with a further 15% increase to allow for ‘quality’ standards associated with modern development in London. Three Dragons, David Lock Associates and TradeRisks Ltd 13 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 3.13 An additional £453 per dwelling was added to meet Building Regulations 20137. 3.14 It is the view of the GLA that Building Regulations 2013 broadly take into account Code for Sustainable Development level 4 and that no additional costs are required to be modelled to be consistent with Policy 5.2 of Draft Further Alterations to the London Plan (January 2014). Future increases in build standards may require a review of this assumption. 3.15 3.16 Other development costs included: Professional fees 12% of costs Interest rates 7.0% (both tenures) Marketing fees 3% of GDV (market housing only) Developers return 20% GDV (market housing only) Contractor’s return 6% of build costs (affordable housing only ) We make no assumption about exceptional development costs for the 1 ha tile. Exceptional development costs for the case studies are set in bands based on site observation, low (nil), medium (£250,000 per ha) and high (£750,000 per ha). Density 3.17 For testing the 1 ha tile, the Boroughs were assigned to one of three groups based on an assumed ‘typical’ future development density. The densities were derived from analysis of the SHLAA database and in light of development density policies in the London Plan and discussion with the GLA. 3.18 The three density groups for testing were 80 dph, 160 dph and 320 dph and the Boroughs were assigned to these as shown in the table below. 7 DCLG Changes to Part L of the Building Regulations 2013 Impact Assessment August 2013. Three Dragons, David Lock Associates and TradeRisks Ltd 14 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Table 3.1a: Boroughs assigned to each density 80 dph 160 dph 320 dph Barking and Croydon Brent Dagenham Haringey Camden Barnet Newham City of London Bexley Greenwich Bromley Hackney Ealing Hammersmith and Fulham Enfield Islington Harrow Kensington and Chelsea Havering Kingston Hillingdon Lambeth Hounslow Lewisham Merton Southwark Redbridge Tower Hamlets Richmond Waltham Forest Sutton Wandsworth Westminster Three Dragons, David Lock Associates and TradeRisks Ltd 15 GLA SHLAA 2013 Table 3.1b Viability Assessment Final Report – April 2014 Dwelling mix for each density used for the 1 ha tile Dph 1 bed 2 bed 3 bed 4 bed All Storeys (for flats? flats in the scheme) 80 dph 20% (flat) 25% (flat) 25% (terrace) 30% (terrace) No 3 160 dph 30% 35% 30% 5% Yes 5 320 dph 40% 35% 20% 5% Yes 12 Size of dwellings 3.19 A range of dwelling types were used in the testing. Dwelling sizes assumed were taken from FALP (Table 3.3) using specific bedrooms/person as agreed with the GLA. Houses 2 bed terr (2b/4p) 83 sq m 3bed terr (3b/5p – 3 storey) 102 sq m 4 bed terr (4b/6p– 3 storey) 113 sq m Flats 1 bed (1b 2p) 50 sq m 2 bed (2b/4p) 70 sq m 3 bed (3b/5p) 86 sq m 4 bed (4b/6p) 99 sq m Additional space allowance for communal areas in flats 3.20 The size of flats was increased to allow for non saleable space within apartment blocks (e.g. for entrance lobbies and lifts). The allowances for this were discussed at the development industry workshops and are as follows: 1-5 storeys +15% 6-15 storeys +20% 16 or more storeys +25% Nett to gross site area 3.21 We do not make any assumption about net to gross site coverage for the 1ha tiles. Our mixes and densities are based on schemes which have typically been delivered on sites of this size across London but we make no judgement about how these units will fit on the site, so we do not specify net to gross area. For the case studies estimated net to gross area is based on site observation. Three Dragons, David Lock Associates and TradeRisks Ltd 16 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Community Infrastructure Levy (CIL) /planning obligations 3.22 For the viability analysis to be complaint with NPPF, it is important that all planning requirements are taken into account and this includes Community Infrastructure Levy (CIL) payments as well as other s106 costs. 3.23 The Mayoral CIL has been adopted with a charge for residential development for every Borough (at £30, £35 or £50 per sq m). 3.24 Not all Boroughs have an adopted CIL but where there is a published charging schedule (adopted, draft or preliminary draft), the most up to date schedule has been used for this study. It is recognised that where a draft or preliminary draft schedule has been used, the adopted schedule may be different and this will affect viability. However, experience to date indicates that where charging rates are modified through the examination process, this has been to reduce the rates, which will have the affect of improving viability. 3.25 For many Boroughs, there is more than one charging zone. For the case studies, it has been possible to identify the relevant rate for the location of the site. For the 1 ha tiles, a single CIL rate was identified for each Borough. This was based on an analysis of the general average of the different rates across the Borough but with an element of common sense to discount rates for areas with very little development anticipated. 3.26 It is acknowledged that, for the analysis of the 1 ha tile, the adoption of an ‘average’ CIL rate means that viability would be weaker or stronger in different parts of the Borough than the results indicate – although the average depicted is reasonable. 3.27 In addition to CIL, allowance was made for a scaled back s106 payment to account for on-site mitigation costs. On advice from GLA, this was estimated at £2,000 per dwelling. 3.28 For Boroughs without a Borough CIL charging schedule (PDCS, DCS or adopted) a single s106 payment was assumed - £10,000 per dwelling. This was as agreed with the GLA and discussed at the stakeholder workshops. Scenario testing 3.27 We were asked to look at the implications of possible changes in house prices and build costs and also at the impact of providing grant to support the provision of affordable housing. 3.28 In terms of viability modelling house price rises improve viability unless they are accompanied by even larger increases in build or other development costs. Historically house prices have risen faster than build costs (see chart 3.2 below) Three Dragons, David Lock Associates and TradeRisks Ltd 17 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Chart 3.2 Changes in house prices and build costs (1996 =100) House price and build cost change 1996 - 2011 450 400 350 300 250 200 150 100 50 0 House prices Build costs 1996 2000 2004 2008 2011 Sources; London house prices DCLG live table 582, BCIS General Building Cost Index 3.29 BCIS forecasts that over the period 2013/14 to 2017/18 build costs will rise by 3% pa8. 3.30 We looked in detail at potential change in house prices across London (see Appendix 3 “The Housing Market in London: forecast scenarios). The range of published forecasts is summarised in table 3.2 below: 8 BCIS Quarterly Briefing January 2014 Three Dragons, David Lock Associates and TradeRisks Ltd 18 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Table 3.2 Published house price forecasts (4th qtr 2013) London house price forecasts 5 year 2014 2015 2016 2017 2018 Total Source 6.9% 7.4% 7.4% 7.9% 7.9% 43.5% Housing Prospects October 2013 Hamptons International 7.0% 6.0% 4.0% 4.5% 4.5% 28.8% Housing Market Forecasts Autumn 2013 Jones Lang LaSalle 8.0% 8.0% 8.0% 5.0% 5.5% 39.5% Helping Hand - Residential Eye November 2013 Oxford Economics 8.4% 7.6% 7.0% 6.5% 6.1% 41.0% Base data for regional forecasts November 2013 Savills Research 8.5% 6.0% 4.0% 2.0% 2.0% 24.4% Spotlight London Demand November 2013 Average of forecasts 7.8% 7.0% 6.1% 5.2% 5.2% 35.4% Annual average change +5.5% 27.2% Office for Budget Responsibility (November 2013) CEBR Autumn Statement (national forecasts) 3.31 5.2% 7.2% 4.8% 3.7% 3.8% We tested a range of scenarios for house price and build cost change (see table 2.3 below). The scenarios we have chosen have been deliberately biased towards a falling market. Two of our scenarios show very modest house price growth of 3% pa and oen shows a fall of 1% pa.. This is at odds with the optimism of recent published forecasts but is justified by our role in the evaluation of the London SHLAA which is to test viability. In general strong housing markets with moderate to strong house price growth improve development viability unless this is accompanied by even stronger increases in costs. We have therefore focussed on the downside scenarios because they pose a potential threat to viability and delivery of the London Plan, whereas rising house prices should merely improve viability and encourage delivery. Three Dragons, David Lock Associates and TradeRisks Ltd 19 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Table 3.3: House price and build cost scenarios for testing Suggested scenarios Scenario A London house prices Build costs 3.32 % change pa Comment 3% 3% Modest growth Modest growth Scenario B London house prices Build costs -1% 3% Falling Modest growth Scenario C London house prices Build costs 3% 0% Real house price growth of 3% more than build cost- historic norm We tested all case study sites and the 1 ha tiles against each of the 3 scenarios outlined above. We also test for grant at £30,000 per affordable home. This figure was agreed with the GLA and discussed at the workshop. Three Dragons, David Lock Associates and TradeRisks Ltd 20 GLA SHLAA 2013 4.0 Viability Assessment Final Report – April 2014 VIABILITY TESTING: RESULTS FOR THE 1 HA TILE Borough groupings 4.1 For testing the 1 ha tile, the Boroughs were assigned to one of three groups based on an assumed ‘typical’ future development density (80 dph, 160 dph or 320 dph). Most Boroughs fell into either the 80 dph category or the 320 dph category. Table 4.1: Boroughs assigned to each density 80 dph 160 dph 320 dph Barking and Dagenham Croydon Brent Barnet Haringey Camden Bexley Newham City of London Bromley Greenwich Ealing Hackney Enfield Hammersmith and Fulham Harrow Islington Havering Kensington and Chelsea Hillingdon Kingston Hounslow Lambeth Merton Lewisham Redbridge Southwark Richmond Tower Hamlets Sutton Wandsworth Waltham Forest Westminster Assessment of benchmark land values for policy purposes 4.2 Assessment of land value is a sensitive and hotly debated subject. It is worth noting the comments of the Examiner on the viability evidence presented in support of the London CIL: “The market value approach…. while offering certainty on the price paid for a development site, suffers from being based on prices agreed in an historic policy context.” (para 8) and that “I don’t believe that the EUV approach can be accurately described as fundamentally flawed or that this examination should be adjourned to allow work based on the market approach to be done” “the price paid for development land may be reduced [so that CIL may be accommodated]. As with profit levels there may be cries that this is unrealistic, but a reduction in development land value is an inherent part of the CIL concept. It may be argued that such a reduction may be all very well in the medium to long term but it is impossible in the short term because of the price already paid/agreed for development land. The difficulty with that argument is that if accepted the prospect of raising funds for infrastructure would be forever Three Dragons, David Lock Associates and TradeRisks Ltd 21 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 receding into the future. In any event in some instances it may be possible for contracts and options to be re-negotiated in the light of the changed circumstances arising from the imposition of CIL charges. (para 32 – emphasis added). Results from the 1 ha tile 4.3 At Borough-wide average house prices and build costs development at 320 dph achieved land values in excess of benchmark in 15 London Boroughs (see Charts 4.1 and 4.2 below). Development at 160 dph was viable at above benchmark land values in 3 London Boroughs (Chart 4.3) and development at 80 dph was viable at above benchmark land values in 15 London Boroughs (Chart 4.4), 4.4 Grant was required to achieve the benchmark residual land value in three 80 dph Boroughs (Barking and Dagenham, Bexley, Sutton) and one 320 dph Borough (Brent). In the majority of London Boroughs, at the mix of affordable housing modelled, grant was not necessary in order to achieve benchmark residual land value at the policy compliant level of affordable housing. 4.5 Comparable increases in house prices and build costs (Scenario A) produced a slight improvement in viability. Scenario B, where build costs rose faster than house prices produced a slight deterioration in viability. Scenario C where house prices rose faster than build costs and Scenario D the addition of grant at £30,000 per affordable unit produced the greatest improvement in viability. Chart 4.1 Residual value per ha Westminster, City of London and Kensington and Chelsea (red line equals benchmark land value) Three Dragons, David Lock Associates and TradeRisks Ltd 22 GLA SHLAA 2013 Chart 4.2 Viability Assessment Final Report – April 2014 Residual value per ha remaining 320 dph Boroughs Three Dragons, David Lock Associates and TradeRisks Ltd 23 GLA SHLAA 2013 Chart 4.3 Viability Assessment Final Report – April 2014 Residual value per ha 160 dph tiles (red, purple and blue lines are CIL benchmarks Residual Values per ha for 160dph 1ha tiles Newham Office ‐ high value £17.37m/ha Office ‐ lower value £10.98m/ha £9,000,000 £8,000,000 £7,000,000 Base £6,000,000 Scenario A ‐ house price and build cost rise equal £5,000,000 Scenario B ‐ build cost rise exceeds house price rise £4,000,000 Scenario C ‐ house price rise exceeds build cost rise Scenario D ‐ Grant of £30K per affordable home £3,000,000 £2,000,000 £1,000,000 £0 Croydon Haringey Newham Three Dragons, David Lock Associates and TradeRisks Ltd 24 GLA SHLAA 2013 Chart 4.4 Viability Assessment Final Report – April 2014 Residual value per ha 80 dph tiles (red, purple and blue lines are CIL benchmarks) Three Dragons, David Lock Associates and TradeRisks Ltd 25 GLA SHLAA 2013 5.0 Viability Assessment Final Report – April 2014 VIABILITY TESTING THE CASE STUDIES Selection of case studies 5.1 Selection of the case studies predated publication of the National Planning Practice Guidance but the process adopted for their selection is consistent with the Guidance which states that: “Evidence should be proportionate to ensure plans are underpinned by a broad understanding of viability. Greater detail may be necessary in areas of known marginal viability or where the evidence suggests that viability might be an issue – for example in relation to policies for strategic sites which require high infrastructure investment.” 5.2 40 case studies were selected – 5 each from eight Boroughs. 5.3 The primary selection criterion for the case study Boroughs was that they were expected to make a significant contribution to overall housing land supply in London but had shown low actual output, compared to London Plan targets. 5.4 Case study Boroughs were also selected to give a range of market values and a reasonable geographic spread across London. The initial list of Boroughs selected for case study analysis was presented to the development industry workshop, along with indicative information about relative market values and delivery of housing against London plan targets. This is set out in the table below. Three Dragons, David Lock Associates and TradeRisks Ltd 26 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Table 5.1 Case study Boroughs Borough Average house price Annual Net housing target conventional (900+) delivery Shortfall HIGHER HOUSE PRICE AREAS Southwark £421,806 2005 1084 921 Hamlets £372,057 2885 903 1982 Brent £348,642 1065 560 505 Tower LOWER HOUSE PRICE AREAS Greenwich £280,659 2595 1323 1272 Havering £259,115 970 100 870 Croydon £249,996 1330 688 642 Newham £228,120 2500 909 1591 £217,102 1065 393 672 Barking and Dagenham Source: Land Registry (house prices), London Plan and GLA Annual Monitoring Report 9 (2011/12) table 2.6 5.5 The development industry workshops expressed the view that the selection of Boroughs was robust but somewhat geographically unbalanced. In agreement with the GLA, this weakness was addressed by replacing LB Havering with LB Hounslow 5.6 The final eight Boroughs from which case studies were drawn were: Barking and Dagenham, Brent, Croydon, Greenwich, Hounslow, Newham, Southwark Tower Hamlets Three Dragons, David Lock Associates and TradeRisks Ltd 27 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Selection of case study sites 5.7 The sites were drawn from the GLA’s SHLAA database. It was agreed that the sample should focus on sites considered to have an 80-100% probability of delivery during the second and third phase of the SHLAA. 5.8 Sites in the database were initially analysed in terms of the number of dwellings (using the notional capacity). The categories used were: 5.9 Small: 1-49 units Medium: 50-200 units Large: 201-2000 units Very Large: 2001+ units In most Boroughs ‘small’ sites are more numerous than any other category, in terms of dwelling numbers, ‘small’ sites make a limited contribution to future supply. They account for only 5% of delivery in the second and third phases of the SHLAA. ‘Small’ sites were therefore excluded from the sample as being of limited importance for future supply and the case studies were drawn from the other three categories of sites. 5.10 To ensure a consistent selection of sites from the three groups, the same approach was taken across each Borough. The only exception was Greenwich (given that this is the only one of the selected Boroughs within which there is a site of over 2000 units). The five sites selected in each Borough were drawn from the following categories: Site 1: the smallest (in terms of units numbers) site in the ‘medium’ category; Site 2: the largest (in terms of unit numbers) site in the ‘medium’ category; Site 3: rank the three largest (in terms of unit numbers) ‘large’ sites in order of density and take the site of the highest density of these three; Site 4: as above and take the site of the lowest density of these three; Site 5 (all Boroughs other than Greenwich): take the median site in ‘large’ category; Site 5 (in Greenwich): the largest site in ‘very large’. Three Dragons, David Lock Associates and TradeRisks Ltd 28 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Characteristics of the case study sites 5.11 Information for each case study was collected through a combination of desk based analysis and a site visit. The information was as follows: Site address and Borough Net and gross sites areas (taken from the SHLAA) Dwelling capacity (taken from the SHLAA) Assumed density (taken from the SHLAA) Existing use of site and occupation levels Site characteristics and any constraints to development Characteristics of surrounding development Planning policies that will impact on development type CIL rate (London Mayor and Borough CIL – latest of adopted, DCS and PDCS) Assessment of future development type (all apartments, mix apartments and houses, houses only) Whether new build (with/without demolition of existing development) or conversion. 5.12 To test the viability of the case studies, the information listed above was used to provide the inputs to populate the GLA Toolkit. The key information was: Height of buildings (notably number of storeys for apartments) Mix of dwelling types (reflecting site characteristics, density of development and comparison with known dwelling mixes for recent planning permissions) An assessment of the likely additional abnormal costs to bring the scheme forward for development. Each case study was assigned to one of three categories with a different level of costs: o High – buildings to clear - £750,000 per hectare o Low – no buildings to clear but additional site costs anticipated (e.g. breaking up) - £250,000 per hectare o 5.13 Nil – site is ready for development The assessment of abnormal costs was made on the basis of the available evidence and it should be noted that, when development takes place, a different level of costs could well be found. In all cases, the assessment erred on the side of higher costs where there was any doubt about which figure to use. 5.14 An assessment of the amount of existing floorspace to be netted off the notional CIL liability, This was based on site visit information and must be treated as a broad estimate based on best available information. Three Dragons, David Lock Associates and TradeRisks Ltd 29 GLA SHLAA 2013 5.15 Viability Assessment Final Report – April 2014 In addition, estimates were provided for each case study for market sale prices and affordable rent values (reflecting the location of the site). These are bespoke estimates and may differ from the average values used for the analysis of the 1 ha tile. 5.16 All other assumptions were the same as used for the 1 ha tile. This includes build costs, dwelling sizes (and % assumed for circulation space) and other development costs (including developer return, professional fees and finance costs). Full details of the assumptions used are found in Appendices 1 and 4. 5.17 A series of residual values were assessed for each case study as follows: 1. Base case – using current values and costs 2. Scenario A - House prices and build costs both increasing by 3% pa 3. Scenario B - Build costs increasing by 3% pa while house prices fall by 1%pa 4. Scenario C - House prices increasing by 3% pa with no increase in build costs (historic long term norm) 5. Scenario D - With grant of £30,000 per affordable dwelling 5.18 A description of the key characteristics of the case studies and the results of the testing are set out for each Borough on the following pages. The residual values generated for each scenario are compared with benchmark land values taken from the relevant viability study and as described in Chapter 3. Overview of case studies 5.19 Compared with the lowest benchmark land value identified for each Borough, 22 out of 40 case studies achieved an RLV above the benchmark (for the base case). Barking and Dagenham is the only Borough where none of the case studies achieved a positive RLV. 5.20 Key factors influencing viability were found to be: House prices (which can vary considerably at local level) Density/storey height – where apartment blocks above 5 and 11 storeys have a step change in build costs and also an increase in non saleable floorspace – both of which reduce RLV. As a general rule, lower density schemes in lower value areas produce higher RLVs than do high density schemes. 5.21 The scenario testing indicates that in some circumstances a sustained increase in house prices and/or introduction of grant (e.g. at £30,000 as was tested in Scenario D) can produce an increase in RLV, sufficient to make a non viable scheme viable. Three Dragons, David Lock Associates and TradeRisks Ltd 30 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Of the 18 case studies that did not achieve the benchmark for the base case, 5 did so with Scenario C or D. 5.22 There are, though, a group of 13 case studies where a significant change in the type of development will need to be considered to deliver a viable scheme. These are typically high density schemes in tall apartment blocks in low value areas within their Borough. But the evidence of the case studies (as with the 1 ha tile) is that some form of development will be viable in all Boroughs. This is particularly important given the focus on the case study Boroughs on those Boroughs where delivery of housing has been found to be behind target indicating a potential viability issue. 5.23 The exception to this is Barking and Dagenham where the analysis indicates that there is a need for review of the type of schemes being put forward and the scale of planning obligations (including affordable housing) that is being sought and/or an increase in the level of subsidy for affordable housing that is available, though noting that current achieved levels of affordable housing provision in the Borough, would appear with grant support and discounted public land, to produce viable schemes. 5.24 We turn now to results for the individual case studies, working through from high to low house price Boroughs. Three Dragons, David Lock Associates and TradeRisks Ltd 31 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Southwark Case studies Net area (ha) Gross area (ha) Total Dwellings Density (/net ha) Apartments only/ mixed/ houses only Storeys Current Use of Site Southwark 1 Southwark 2 Southwark 3 Southwark 4 Southwark 5 1 ha tile 1.55 2.54 400 258.06 0.37 0.43 50 135.14 1.39 1.56 361 259.71 0.70 0.93 182 260.00 1.20 1.59 643 535.83 1.00 1.00 320 320.00 Apartments Apartments Apartments Apartments Apartments Apartments 5 Retail and car park 5 Offices and commercial 5 Cleared land 5 11 Industrial/ part vacant 12 Retail Residual Value per gross ha (£) £35,000,000 £30,000,000 £25,000,000 Base £20,000,000 Scenario A £15,000,000 Scenario B £10,000,000 Scenario C £5,000,000 Scenario D £0 Southwark 1 Southwark 2 Southwark 3 Southwark 4 Southwark 5 1 ha tile ‐£5,000,000 ‐£10,000,000 ‐£15,000,000 Benchmark land values (ha) £6.0m – £13.5m9 Commentary Case studies 2, 3, 4 and 5 and the 1 ha tile have a base case RLV above the lower benchmark value. The low RLV for case study 1 is largely explained by low market values but also the low net/gross area ratio – at 61%. The introduction of grant at a slightly higher rate than tested (Scenario D) would provide a RLV above the lower benchmark. 9 The CIL viability study provides individual benchmark land values for over 50 schemes. £6m to £13.5m represents a reasonable range but with some benchmark values higher and some lower. Three Dragons, David Lock Associates and TradeRisks Ltd 32 n/a GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Tower Hamlets Case studies Net area (ha) Gross area (ha) Total Dwellings Density (/net ha) Apartments only/ mixed/ houses only Storeys Current Use of Site Tower Hamlets 1 4.86 4.86 1,156 237.86 Tower Hamlets 2 0.33 0.33 52 157.58 Tower Hamlets 3 1.20 1.61 198 165.00 Tower Hamlets 4 1.10 1.33 920 836.36 Tower Hamlets 5 2.10 2.46 325 154.76 1 ha tile Apartments Apartments Apartments Apartments Apartments Apartments 5 5 Industrial use 5 Community use 45 5 Office and cleared site 12 Retail Mixed Residual Values per gross ha (£) £35,000,000 £30,000,000 Base £25,000,000 Scenario A £20,000,000 Scenario B Scenario C £15,000,000 Scenario D £10,000,000 £5,000,000 £0 Tower Tower Tower Tower Tower Hamlets 1 Hamlets 2 Hamlets 3 Hamlets 4 Hamlets 5 1 ha tile Note: Tower hamlets 4 excluded because values off scale Benchmark land values (ha) Industrial - £5.3m Office - £10.0m - £15.5m Note: Case study 4 per ha RLV range from minus £30m to minus £105m for this 45 storey development Commentary The 1 ha tile and all case studies (base case) except case study 4 exceed both the industrial benchmark and the lower office value benchmark. Case study 4 produces a negative RLV because it is a very tall building (45 storeys) with build costs at £4,633 per sq m (nearly three times as high as for the other case studies which are all 5 storey developments). The extra costs are not compensated for by higher market values. Case study 5 produces the highest RLV. This is because house prices are approximately 70% higher than the average for the Borough. Three Dragons, David Lock Associates and TradeRisks Ltd 33 1.00 1.00 320 320.00 n/a GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Brent Case studies Net area (ha) Gross area (ha) Total Dwellings Density (/net ha) Apartments only/ mixed/ houses only Storeys Current use of site Brent 1 0.22 0.44 51 231.82 Brent 2 6.96 10.39 1,497 215.09 Brent 3 0.51 0.51 362 709.80 Apartments Apartments Apartments 4 Retail and commercial 6 12 Mixed commercial Warehousing part vacant Brent 4 0.80 1.18 186 232.50 Brent 5 6.00 7.99 1,500 250.00 Apartments Apartments 1 ha tile 1.00 1.00 320 320.00 Apartments 5 5 12 Retail and workshop Commercial n/a Residual Value per gross ha (£) £25,000,000 £20,000,000 Base Scenario A Scenario B Scenario C Scenario D £15,000,000 £10,000,000 £5,000,000 £0 Brent 1 Brent 2 Brent 3 Brent 4 Brent 5 1 ha tile (£5,000,000) Benchmark land values (ha) Industrial - £4.81m, Office - £11.88m Commentary Residual values vary significantly between the case studies but all have a positive RLV for the base case. Case studies 3 and 5 and the 1 ha tile have RLVs which exceed the industrial benchmark land value. No case studies at the base case exceed the office benchmark land value. Case studies 3 and 5 produce the strongest RLV. They have high site net/gross ratios (100% and 75% respectively) and house prices comparable with the Borough average. Case study 3 is very high density. It performs well at 12 storeys, but when tested at 18 storeys (not shown above) produced a negative land value. Case studies 1, 2 and 4 do not achieve the industrial land value benchmark. For 1 and 4, this is at least in part explained by market values lower than the Borough average. Case studies 2 and 4 would reach/exceed the industrial land value benchmark with grant (or with growth in house prices at 3% per annum). Three Dragons, David Lock Associates and TradeRisks Ltd 34 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Greenwich Case studies Greenwich 1 Greenwich 2 Greenwich 3 Greenwich 4 Greenwich 5 1 ha tile 2.70 3.00 324 120.00 1.63 2.04 660 404.91 0.29 0.29 54 186.21 36.00 75.00 4,000 111.11 1.85 2.00 182 98.38 1.00 1.00 320 320.00 Mixed Apartments Apartments Mixed Mixed Apartments 4 8 3 10 5 12 Vacant land Large scale development Commercial/ industrial n/a Net area (ha) Gross area (ha) Total Dwellings Density (/net ha) Apartments only/ mixed/ houses only Storeys Current use of Site Residential Mixed Residual Value per gross ha (£) £25,000,000 £20,000,000 Base Scenario A £15,000,000 Scenario B Scenario C £10,000,000 Scenario D £5,000,000 £0 Greenwich 1 Greenwich 2 Greenwich 3 Greenwich 4 Greenwich 5 1 ha tile ‐£5,000,000 ‐£10,000,000 Benchmark land values(ha) Industrial - £2.24m – £3.75m, Office - £8.16m - £14.31m Commentary The 1 ha tile and all case studies (except case study 4) produce an RLV above the lower industrial benchmark land value. Only the 1 ha tile and case study 3 achieve a base RLV above the lower office land value benchmark, although case studies 1 and 2 can achieve this with either a 3% per annum increase in house prices (Scenario C) and/or with grant (Scenario D). Case study 3 has the highest RLV. It has the highest house prices, the highest net/gross site area ratio (100%) and the lowest storey height (3 storeys). Case study 4 has the lowest RLV. It is the largest case study assessed at 4,000 dwellings with a very low net/gross area. Three Dragons, David Lock Associates and TradeRisks Ltd 35 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Hounslow Case studies Hounslow 1 Hounslow 2 Hounslow 3 Hounslow 4 Hounslow 5 1 ha tile Net area (ha) Gross area (ha) Total Dwellings Density (/net ha) Apartments only/ mixed/ houses only Storeys 2.52 5.05 333 132.14 2.64 5.28 400 151.52 1.24 1.65 50 40.32 0.97 2.87 355 365.98 3.54 8.05 206 58.19 1.00 1.00 80 80.00 Mixed Mixed Mixed Apartments Mixed Mixed 5 5 10 5 3 Current Use of Site Commercial Commercial 5 Commercial/ leisure Commercial Leisure n/a Residual Value per gross ha (£) Hounslow ‐ Residual Value per gross ha (£) £12,000,000 Base £10,000,000 Scenario A £8,000,000 Scenario B Scenario C £6,000,000 Scenario D £4,000,000 £2,000,000 £0 Hounslow 1 Hounslow 2 Hounslow 3 Hounslow 4 Hounslow 5 1 ha tile ‐£2,000,000 Benchmark land values (ha) Industrial - £3.9m, Office - £7.1m, Backland – £8.8m Commentary RLVs vary significantly between case studies - the RLV for the 1 ha tile exceeds that for the case studies. RLVs for case studies 1 and 2 and the 1 ha tile exceed the industrial land value benchmark. Case study 2 is the only case study where house prices are higher than the Borough average. The RLV for this case study exceeds the office benchmark; it also exceeds the backland benchmark with a 3% pa real rise in house prices. Case studies 4 and 5 have lower house prices and the lowest ratio net/gross area (34% and 44% respectively) which explains their relatively poor performance. Case study 3 is the only case study that produces a negative RLV with little difference in RLV across the scenarios tested. Three Dragons, David Lock Associates and TradeRisks Ltd 36 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Croydon Case studies Net area (ha) Gross area (ha) Total Dwellings Density (/net ha) Apartments only/ mixed/ houses only Storeys Current Use of site Croydon 1 Croydon 2 Croydon 3 Croydon 4 Croydon 5 1 ha tile 0.35 0.35 56 160.00 0.50 0.73 200 400.00 19.00 25.75 644 33.89 0.44 0.44 177 402.27 0.80 1.33 250 312.50 1.00 1.00 80 80.00 Apartments Apartments Mixed Apartments Apartments Mixed 6 Offices and retail 11 4 Community use 10 Previously used 10 3 Office use n/a Office use Residual Value per gross ha (£) £8,000,000 £6,000,000 £4,000,000 Base £2,000,000 Scenario A £0 Croydon 1 Croydon 2 Croydon 3 Croydon 4 Croydon 5 1 ha tile Scenario B ‐£2,000,000 Scenario C ‐£4,000,000 Scenario D ‐£6,000,000 ‐£8,000,000 ‐£10,000,000 ‐£12,000,000 Benchmark land values (ha) Commercial and Industrial - £2.0m10 Commentary The 1 ha tile and all case studies apart from case study 4 achieve the benchmark Case studies 2 and 5 produce the highest RLV. They are conversions with 25% lower build costs and pay no CIL. This offsets the fact that they are high density which in a newbuild scheme would have produced a low RLV. Case study 4, which is similar density (400 dwgs per nett ha) to case study 2 (and a higher house price) performs badly because as a newbuild scheme its build costs are higher. 10 Benchmark land value is a broad average across a number of specific site types shown in the CIL viability study. Some site types had a lower benchmark and others as high as c£4.3m Three Dragons, David Lock Associates and TradeRisks Ltd 37 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Newham Case studies Net area (ha) Gross area (ha) Total Dwellings Density (/net ha) Apartments only/ mixed/ houses only Storeys Current Use of Site Newham 1 0.65 1.30 315 484.62 Newham 2 4.03 6.01 1631 404.71 Newham 3 2.80 3.16 515 183.93 Newham 4 0.42 0.63 177 421.43 Newham 5 0.49 0.49 53 108.16 1 ha tile 1.00 1.00 160 160.00 Apartments Apartments Mixed Apartments Mixed Apartments 12 10 5 3 5 Vacant Office Housing 10 Cleared land Vacant n/a Residual Value per gross ha (£) £15,000,000 £10,000,000 Base £5,000,000 Scenario A Scenario B £0 Newham 1 Newham 2 Newham 3 Newham 4 Newham 5 1 ha tile ‐£5,000,000 Scenario C Scenario D ‐£10,000,000 ‐£15,000,000 ‐£20,000,000 Benchmark land values (per ha) Industrial - £3.31m Office - £10.98m – £17.37m Commentary RLVs vary significantly between the case studies and 3 case studies have a negative RLV for the base case. The 1 ha tile and case study 5 exceed the industrial land benchmark. No schemes have an RLV which exceeds the office benchmark. Case studies 1, 3 and 4 produce a negative RLV with the base case. These cases studies have the lowest house prices and the highest density per nett ha. Case studies 2 and 5 produced positive RLVs with case study 5 recording the highest RLV, although still less than the 1 ha tile. Case study 5 has the lowest density per net ha, a mix of apartments and houses and has the highest nett/gross area ratio. Case study 2 has the highest house prices but was also very high density with correspondingly high build costs (10 storey development). Three Dragons, David Lock Associates and TradeRisks Ltd 38 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Case studies 2 and 3 are conversions (build costs 25% below BCIS and a low CIL bill) hence their sensitivity to house price change. Three Dragons, David Lock Associates and TradeRisks Ltd 39 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 Barking and Dagenham Case studies Net area (ha) Gross area (ha) Total Dwellings Density (dwg net ha) Apartments only/ mixed/ houses only Storeys Barking & Dagenham 1 0.18 0.35 59 327.78 Barking & Dagenham 2 11.00 15.91 1,500 136.36 Barking & Dagenham 3 2.60 3.75 950 365.38 Barking & Dagenham 4 2.97 5.93 166 55.89 Barking & Dagenham 5 0.29 0.29 225 775.86 1 ha tile Apartments Mixed Apartments Mixed Apartments Mixed 5 5 Industrial and offices 15 Derelict industrial 3 Mixed commercial 15 3 Vacant land n/a Leisure Current use of site Residual Value per gross ha (£) £10,000,000 £0 B & Dag 1 B & Dag 2 B & Dag 3 B & Dag 4 B & Dag 5 1 ha tile Base ‐£10,000,000 Scenario A ‐£20,000,000 Scenario B Scenario C ‐£30,000,000 Scenario D ‐£40,000,000 ‐£50,000,000 ‐£60,000,000 Benchmark land values (ha) Borough) Commentary £1.5m (Barking town centre and Lefley) or £0.74m (rest of All 5 case studies produce negative residual values, whilst the 1 ha tile at 80 dph produces a very modest positive residual value. The poor outcomes for the case studies are explained by a number of factors: o Other than for case study 5, site coverage is low – with net site area ranging from 50-69% of gross site area; o Case studies 1, 2, 3 and 5 are higher density than the 1 ha tile – higher density schemes tend to perform least well in lower value Boroughs such as Barking and Dagenham Three Dragons, David Lock Associates and TradeRisks Ltd 40 1.00 1.00 80 80.00 GLA SHLAA 2013 Viability Assessment Final Report – April 2014 o Case studies 3 and 5 are apartment schemes assumed to be at 15 storeys – schemes of this number of storeys have high build costs and a high percentage of non saleable space o Affordable housing of 50% has been assumed House prices for case studies 2 and 4 are lower than for the 1 ha tile. For other case studies house prices are higher than the Borough average. Case studies 2 and 4 have the least worst RLV and are lower density schemes with apartment blocks at 5 and 3 storeys respectively and some houses. Barking and Dagenham does not have a specific affordable housing target (the 50% figure quoted in the AMR is derived from the London Plan). We have therefore modelled the 1 ha tile at 30% affordable housing, which is the level currently achieved. This produces a positive residual of £1.6m with grant (£900,000 without grant). The lower of these two figures is higher than the rest of Borough benchmark, whilst the higher figure exceeds the town centre benchmark. Case studies are modelled at 50% affordable housing. Planned improvements to public transport accessibility in the Borough are expected to have an impact on house prices and hence viability which will need to be taken into account in any future review of viability. Three Dragons, David Lock Associates and TradeRisks Ltd 41 DAVID LOCK ASSOCIATES LIMITED 50 NORTH THIRTEENTH STREET, CENTRAL MILTON KEYNES, MK9 3BP TEL: 01908 666276 FAX: 01908 605747 EMAIL: [email protected] www.davidlock.com
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