2013 GLA SHLAA Viability Assessment

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

Download Report