CoStar Column: NPPF draft - viability needs to be right first time

By Paul Norman - Thursday, March 08, 2018 9:55

Amid the flurry of announcements on Monday regarding the potential changes to the National Planning Policy Framework (NPPF) and associated documents, it was easy to miss some interesting proposals regarding viability testing, writes Will Seamer, associate, Montagu Evans.

Although viability testing may be a contentious subject from a campaigner perspective, from a practical point of view this area needed greater clarity if developers are to bring forward the levels of housing needed to meet national demand, especially if more fundamental changes to the planning system are not forthcoming

The government has clearly listened to both sides and put forward proposals that attempt to make the system more transparent, predictable and efficient. Paragraph 173 of the NPPF has been replaced with a new paragraph, number 58, which states that when a planning application is in line “with all the relevant policies in an up-to-date development plan” no viability assessment will be required. While this is being put forward by the government as something of a ‘Fast Track Route’ for viability, akin to that set out in the Mayor of London’s recent Affordable Housing and Viability SPG, it is in fact nothing new. It has always been the case that where an application aligns with local policy aspirations in terms of affordable housing, then a viability assessment is not required.

Instead, the real change in the guidance is a shift towards increased viability testing by the Local Authority at the plan making stage, with authorities encouraged to identify viability assessments for different sites within their areas. Sites may be grouped together for the sake of simplicity, or individual levels of developer contributions identified for large or strategic sites. It is too soon to tell whether this will deter developers and landowners who feel that an LPA’s assessment of a site’s viability does not align with their own, and also whether LPAs have the necessary resources to assess the viability of multiple sites as part of the plan making process.

There is much to be welcomed in the government’s proposals, in particular its commitment to providing more affordable housing more predictably. However, the approach it has adopted is not without difficulties.

Setting out a site’s viability at a plan making stage will, by definition, only provide a snapshot of development economics frozen in time. If local plans are only to be reviewed at least every five years, as recommended in the draft NPPF, then at the point an application is made it is highly likely that the plan will be out of sync with market conditions. Viability as a discipline aims to reflect the impacts of changing market conditions on housing deliverability, and thus to some extent the premise of the draft NPPF is at odds with the fundamental purpose of viability testing.

Given the long periods covered by local plans, it is inevitable that market conditions will change, so developers will still need to assess viability at the time of an application rather than aligning proposals to the aspirations of an outdated local plan and risk stalling development when a consent on this basis is achieved. On large, multi-phase projects, it is likely that developers will still seek to review viability as the scheme progresses in order that all phases are deliverable. In a rising market this should be welcomed by Local Authorities, since it allows later phases to deliver more affordable housing than had previously been envisaged. In a falling market this should allow the later phases of large developments to come forward rather than stall.

In terms of practical application, the final paragraphs of the Viability Guidance provide a welcome up-to-date government position on key inputs into viability appraisals, such as benchmark land value and developer’s profit.

While the Government’s desire to address viability at the plan making stage is admirable in principle, in practice serious consideration must be given to whether Local Authorities have the required resources to do this justice, and for how long the viability conclusions reached at the plan making stage will be relevant.

With the onus still very clearly on the private sector, viability assessments at the application stage will remain a key tool in ensuring housing delivery against a changing market backdrop. Working with the private sector rather than pushing against companies seeking to deliver more housing should surely be the priority for any further announcements.

Will Seamer, associate, Montagu Evans

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