East Northamptonshire Local Plan Viability Assessment
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East Northamptonshire Local Plan Viability Assessment Prepared for East Northamptonshire Council January 2021 Contents 1 Summary 3 2 Introduction 6 3 Methodology and appraisal approach 18 4 Appraisal assumptions 23 5 Appraisal outputs 33 6 Assessment of appraisal results 34 7 Conclusions and recommendations 58 Appendices Appendix 1 - Policy review Appendix 2 - Residential sales values Appendix 3 - BCIS costs Appendix 4 - Sites details Appendix 5 - Appraisal results (present day) Appendix 6 - Appraisal results (with growth) Appendix 7 - Appraisal results (downside sensitivity) Appendix 8 - Sample appraisal Anthony Lee MRTPI MRICS Senior Director – Development Consulting BNP Paribas Real Estate 5 Aldermanbury Square London EC2V 7BP 020 7338 4061 [email protected] realestate.bnpparibas.com 2 1 Summary 1.1 This report tests the ability of developments in the District of East Northamptonshire to accommodate emerging policies in the Draft East Northamptonshire Part 2 Local Plan, alongside policies in the adopted North Northamptonshire Joint Core Strategy (‘JCS’). 1.2 The study takes account of the impact of the Council’s planning requirements, in line with the requirements of the National Planning Policy Framework (‘NPPF’); the National Planning Practice Guidance (‘PPG’) and the Local Housing Delivery Group guidance ‘Viability Testing Local Plans: Advice for planning practitioners’. Methodology 1.3 The study methodology compares the residual land values of a range of development typologies reflecting the types of developments expected to come forward in the District over the life of the new Local Plan. The appraisals compare the residual land values generated by those developments (with varying levels of affordable housing and other emerging policy requirements) to a benchmark land value to reflect the existing value of land prior to redevelopment. If a development incorporating the Council’s emerging policy requirements generates a higher residual land value than the benchmark land value, then it can be judged that the development is viable and deliverable. Following the adoption of policies, developers will need to reflect policy requirements in their bids for sites, in line with requirements set out in the Planning Practice Guidance1. 1.4 The study utilises the residual land value method of calculating the value of each development. This method is used by developers when determining how much to bid for land and involves calculating the value of the completed scheme and deducting development costs (construction, fees, finance, sustainability requirements and CIL/S106) and developer’s profit. The residual amount is the sum left after these costs have been deducted from the value of the development, and guides a developer in determining an appropriate offer price for the site. 1.5 The housing and commercial property markets are inherently cyclical and the Council is testing the viability of potential development sites at a time when markets have experienced a period of growth, despite the impact of successive lockdown measures put in place to limit the spread of coronavirus. Forecasts for future house price growth point to continuing growth in mainstream housing markets, although there is a degree of short term uncertainty associated with the impact of the ongoing measures taken by the UK to combat the spread of coronavirus. Uncertainty associated with the UK’s future trading relations with other EU and non-EU countries upon cessation of the transition period on 31 December 2020 has now largely been resolved as a result of a trade deal being agreed on 24 December 2020. We have allowed for this medium term growth over the plan period by running a sensitivity analysis which applies growth to sales values and inflation on costs to provide an indication of the extent of improvement to viability that might result. We have also run a ‘downside’ sensitivity analysis which assumes a fall in prices in 2020 followed by slower growth in the subsequent years. The assumed growth rates for this sensitivity analysis are outlined in Section 4. 1.6 This sensitivity analysis is indicative only, but is intended to assist the Council in understanding the viability of potential development sites on a high level basis, both in today’s terms but also in the future. It should be borne in mind that the 2020 coronavirus crisis is a short term economic shock, but the Local Plan will be in place for at least a decade, approximating to a whole economic cycle. Key findings 1.7 The key findings of the study are as follows: 1 Paragraph 002 of the PPG notes that “Policy compliant means development which fully complies with up to date plan policies The price paid for the land is not a relevant justification for failing to accord with relevant plan policies. Landowners and site purchasers should consider this when agreeing land transactions’. 3 ■ Affordable housing: We have appraised residential schemes with a range of affordable housing from 0% to 50% to test the ability of schemes to deliver the pre-existing requirement in JCS Policy 30 for 20% affordable housing on Sustainable Urban Extensions and between 30% and 40% on other sites, subject to individual site viability. There are significant variations in the percentages of affordable housing that can be provided, depending on private sales values (which vary across the District, with the highest values in the rural north and Oundle. and the lowest in the urban areas in the south); scheme composition; and benchmark land value. The results do not point to any particular level of affordable housing that most schemes can viably deliver and we therefore recommend that the target-based approach adopted JCS Policy 30 be retained and applied on a ‘maximum reasonable proportion’ basis taking site-specific circumstances into account. Setting a lower proportion of affordable housing is likely to result in a lower overall number of affordable units being delivered, as sites that could have delivered more would no longer do so. ■ Affordable housing on sites providing 14 or fewer units: JCS Policy 30 applies to schemes providing 15 or more units. There is typically no significant difference in the viability of schemes providing 14 of fewer units than those of 15 units or more. However, providing affordable housing on small sites gives rise to practical difficulties and consequently, most councils operating a small sites affordable policy seek payments in lieu. We have provided an overview of the two main approaches to seeking payments in lieu which are broadly financially neutral for developers in comparison to on-site delivery. In other words, payments in lieu neither incentivise developers to take up the option of a payment, but neither do they penalise them. ■ Open space/sports provision: emerging policies EN7; EN8, EN10 and EN11 seek to protect existing green infrastructure and to enhance it by facilitating additions through open space on developments where possible. Our appraisals incorporate sufficient undeveloped space through a net to gross site area adjustment of 60 to 65% on larger sites to facilitate provision of open space. Our appraisals also incorporate allowances for a package of Section 106 obligations which can include financial contributions where these meet the tests in paragraph 34 of the NPPF. ■ Health Impact Assessment: emerging policy EN12 requires that applicants should undertake health impact assessments at an early stage in the design process to ensure that any issues identified can be addressed or incorporated into the design proposals of individual schemes. This requirement has a de-minimis cost which can readily be absorbed within the overall budget we have incorporated into our appraisals for professional fees. ■ Electric car charging points: emerging Policy EN13 seeks to introduce electric car charging points into new developments. The policy does not specify how many charging points should be provided, but for the purposes of testing the impact of the policy, we have assumed one charging point per residential unit. Costs of installing electric charging points are low when undertaken alongside other construction work; retrofitting developments at a later stage is significantly more expensive. Our appraisals indicate that the impact of the policy requirement on viability of developments in the District is modest, with residual land values falling by a little over 1%. ■ Part M(3) accessibility standards: emerging Policy EN29 seeks to secure 5% of all new dwellings as accessible dwellings meeting Part M(3) accessibility standards. This requirement has a limited impact on viability, with residual land values typically reducing by around 0.5%. ■ Housing for older people: emerging Policy EN31 seeks the provision of housing for older people as follows: 10% of units in Sustainable Urban Extensions; 10% on larger schemes (50 units or more in Rushden, High Ferrers, Irthlingborough and Raunds; and 25 units in Oundle and Thrapston); and 20% of units on schemes in villages providing 5 or more units. This requirement can be readily accommodated by developments across the District, although this depends upon the form of housing provided. Provision of housing for older people as bungalows has only a marginal impact on viability, whereas the impact of extra care schemes is greater. The Council may need to apply a flexible approach to the form of older person’s housing where viability issues are already present, including on Sustainable Urban Extensions. 4 ■ CIL: the Council has previously consulted on a Draft Charging Schedule but has not to date progressed further. Since the consultation, the CIL regulations have been amended to remove the pooling restriction on the use of planning obligations, which makes the case for adopting CIL less compelling than was previously the case. Notwithstanding we have included a hypothetical analysis of the DCS CIL rates in our appraisals and the impact on residual land values in the lowest value parts of the District is as much as 60%, while in higher value areas, the reduction is more modest at around 10%.