Issues and Options – Viability Assessments in County Durham

ISSUES AND OPTIONS – VIABILITY ASSESSMENTS IN COUNTY DURHAM

Completed on behalf of Durham County Council

District Valuer Services (DVS) May 2016

EXECUTIVE SUMMARY

1. Durham County Council (“the Council”) is seeking a high level assessment of viability across Durham County, which identifies particular issues and options likely to be faced in a future Whole Plan and Community Infrastructure Levy (“CIL”) Viability assessment. We have been instructed to specifically consider the following:

(i) Proposed methodology for a future Whole Plan and CIL Viability Assessment, clearly stating the recommended approach to be adopted. (ii) Draft assumptions for a future Whole Plan and CIL Viability Assessment. (iii) How any future study will derive affordable housing targets. (iv) What types of development could be tested when assessing appropriate CIL charges to ensure that any future assessment identifies all possible uses and sets out the proposed assumptions to be applied for each. (v) Which locations across the County are likely to be considered the most viable and therefore offer the greatest opportunity of site delivery.

2. This is a high level review, considering average appraisal inputs. The intention is not to set precedents for individual site assessments. Consequently, the findings of this study should not be used to inform individual viability appraisals, which will need to be undertaken on a site by site basis reflecting the specific nature of each site.

3. The research and appraisals which inform this report were undertaken prior to the Housing and Planning Act being enacted (13 May 2016). Any future Whole Plan and CIL Viability Assessment will need to consider the Act, including the provision of Starter Homes (the details of which will be confirmed through emerging regulations).

4. Likewise, and reflecting an emerging policy aspiration of the Council, any future study may also need to consider the need for specific dwelling types, particularly those which increase the housing options of older people (e.g. bungalows, level access flats, sheltered housing / extra care dwellings). Any assessment of sheltered / extra care dwellings would need to recognise the nuances of the care market and adjust the appraisal model accordingly. Linked to this, the study may also need to consider enhanced specification standards, for example dwellings meeting the Optional Category 2 of the 2015 edition of “Approved Document M (access to and use of buildings) – Volume 1”), which forms part of the Building Regulations 2010 (Category 2 relates to “accessible and adaptable dwellings”).

5. We conclude the residual method is appropriate, meeting the requirements of the NPPG / NPPF. This involves identifying a sample of sites considered representative of the area (either real or hypothetical site types) and running individual viability appraisals. The approach is not without its flaws, and can be subject to variances due to the high number of inputs. However, it is considered appropriate for a study of this nature and is commonly used in the industry.

6. One advantage of the residual approach is that it is flexible. The study is seeking to identify appropriate S106, affordable housing and CIL contributions, therefore we recommend ‘fixing’ all other elements of the appraisal (including land value and developer’s profit). If a scheme is shown to demonstrate a surplus, this could then be allocated, on a proportional basis, as S106 / affordable housing / CIL charges.

7. The NPPF / NPPG recommends Whole Plan and CIL assessments build in appropriate ‘buffer’ allowances (i.e. conclusions reached should not be based on the ‘extremes’ of viability). This is to limit the impact of the inherent weaknesses in the residual method and to minimise the impact of market changes over time. With regard to CIL, recent CIL examinations support a reduction in the region of 25 – 30%, to be applied to the ‘rate per sq m’ identified through initial viability testing.

8. When considering non-residential site types the approach should be the same as for residential sites. In Section 5 we have identified hypothetical site ‘types’ for non- residential (should this be the preference). This is an attempt to cover all the likely non-residential site ‘types’ that could come forward given the current market conditions, but should not be regarded as being exhaustive at this stage.

9. Whilst full testing has not been undertaken at this stage, we anticipate that higher value areas are likely to have a better chance of delivering viable schemes. In this regard, we would expect locations such as Durham City, Chester-le-Street and Barnard Castle to show the strongest viability results. However, this will need to be confirmed through a robust appraisal process.

Summary Schedule – Draft Viability Assumptions

Appraisal input Draft views What is an appropriate gross to net Circa 85% ratio?

What are appropriate assumptions - 2 / 2.5 storey dwellings regarding house types and average - Detached house 110 sq m sizes? - Semi-detached house 85 sq m - Terraced house 75 sq m

What is a reasonable assumption Circa 50 – 55% of market value. regarding affordable rent transfer values?

What is a reasonable assumption Circa 67.5% - 70% of market value regarding shared ownership transfer values?

What should be considered as an - For a scheme in excess of 50 dwellings £840 per sq m. average ‘basic’ build cost? - For schemes producing less than 50 units use BCIS median figures (currently £963 per sq m) - Single garages - £5,000 to £7,500 per unit - Double garages - £10,000 to £15,000 per unit.

How should external / site 17.5% of the basic build cost infrastructure costs be allowed for?

What level of contingency should be 3% of basic build costs included?

How should ‘abnormal’ development - £150,000 per gross Ha for the greenfield sites costs be accounted for? - £200,000 per gross Ha for the brownfield sites.

What is an appropriate average for 6% of basic build costs / externals professional fees?

What is a reasonable assumption for 3% of sales value, plus an additional allowance for legal costs marketing costs? at £500 per dwelling

How should an appropriate - Larger schemes (over 50 units) 8% on cost for the developer’s return be factored into affordable units, 18.5% on revenue for market value. the appraisals? - Smaller schemes (sub 50 units) 8% on cost for the affordable units, 15 – 17.5% on revenue for market value. What is a reasonable allowance for - 5.5% to 6% debit finance costs? - 3% credit

How should sales values be factored - Low value area sub £1,750 per sq m into the appraisal, taking into - Medium value area £1,750 - £2,000 per sq m account the granular nature of the - High value area over £2,000 per sq m market?

What is appropriate for greenfield - Low value area sub £250,000 per gross Ha Threshold Land Values? - Medium value area £250,000 to £400,000 per gross Ha - High value area over £400,000 per gross Ha

What is appropriate for brownfield - £125,000 to £400,000 per gross Ha for secondary / tertiary Threshold Land Values? industrial land - All other brownfield sites should be assessed on a site by site basis

How should site acquisition costs be - 0.5% legal fee included? - 1% sales agent fee - Stamp duty at prevailing rate

Are Section 106 obligations to be Draft / emerging policies should be considered as part of the factored into the appraisals? If so, testing process and in the context of the NPPF / NPPG, which how? seeks to ensure policies adopted by the Council do not undermine the viability of schemes.

1. INTRODUCTION Pg 8

Instruction 8

2. VIABILITY METHODOLOGY 10

National Planning Policy Framework (“NPPF”) 10 National Planning Policy Guidance (“NPPG”) 11 Professional Guidance for Viability Assessments 11 The Financial Appraisal Model / The 'Residual' Method 16 Summary 19

3. DRAFT VIABILITY ASSUMPTIONS 21

Introduction 21 'Real' Site Assessments Or Hypothetical Site Types 21 Local Market Conditions 22 Gross And Net Developable Areas 22 Capacity / Density 23 Dwelling Mix And Sizes 25 Specification 27 Affordable Rented Assumptions 27 Intermediate / Shared Ownership Assumptions 30 'Basic' Build Costs 31 Externals / Infrastructure 36 Contingency 40 Abnormal Development Costs 43 Professional Fees 44 Marketing 47 Developer's Profit 49 Finance 52 Threshold Land Value 53 Site Acquisition And Disposal Costs 71 Section 106 Contributions / Emerging Policy Aspirations 71

4. RESIDENTIAL SALES REVENUE 72

Introduction 72 Market Conditions 72 County Durham Housing Market Review 73 Summary 74

5. COMMUNITY INFRASTRUCTURE LEVY (“CIL”) – SITE TYPES 76

Introduction 76 Methodology 76 Site Types 78 Evidence 79 Comments 84

6. FINAL COMMENTS 85

Table 1 – Gross to net ratio evidence 23 Table 2 – Sample of rented modern houses & affordable rent calculation 29 Table 3 – Greenfield transactional evidence 65 Table 4 – Brownfield transactional evidence 70 Table 5 – Average House Prices 74 Table 6 – Non-residential Market Rent and yield ranges 80 Table 7 – Non-residential key appraisal inputs 81

APPENDIX 1 – Gardiner and Theobald Build Cost Evidence APPENDIX 2 – County Durham Housing Market Review

1. INTRODUCTION

1.1 Instruction

1.1.1 Durham County Council (“the Council”) is seeking a high level assessment of viability across Durham County, which identifies particular issues and options likely to be faced in a future Whole Plan and Community Infrastructure Levy (“CIL”) Viability assessment.

1.1.2 The Council is specifically seeking commentary on:

1. Proposed methodology for a future Whole Plan and CIL Viability Assessment, clearly stating the recommended approach to be adopted to any future assessment.

2. Draft assumptions for a future Whole Plan and CIL Viability Assessment.

3. How any future Whole Plan and CIL Viability Assessment will derive affordable housing targets.

4. What types of development could be tested when assessing appropriate CIL charges to ensure that any future Whole Plan and CIL Viability Assessment identifies all possible uses and sets out the proposed assumptions to be applied for each.

5. Which locations across the County are, generally speaking, likely to be considered the most viable and therefore offer the greatest opportunity of site delivery.

1.1.3 This document has been prepared on a high level basis for the purposes of a Whole Plan and CIL viability study. Its intention is to consider broad average viability appraisal inputs across the area of the study, and not set precedents for individual site viability assessments. In other words, the high level findings of this study should not be used to inform individual viability appraisals of ‘real’ development sites, which (as per the guidance) will need to be undertaken on a site by site basis reflecting the specific nature of the land in question.

1.1.4 Instead, this report is intended to raise likely issues and options that would face any future Whole Plan and CIL Viability Assessment and to give a professional viewpoint on certain aspects of viability based on the DVS experience in this sector and research undertaken at a point in time. The intention is also to stimulate debate with key stakeholders. This report may therefore be used as a ‘starting point’ for a future Whole Plan and CIL Viability Assessment, but should not be used as a precedent when considering individual site viability assessments.

1.1.5 Please note, the research and appraisals which inform this study were undertaken prior to the enactment of the Housing and Planning Act on 13 May 2016. Any future Whole Plan and CIL Viability Assessment will need to incorporate the requirements of this law, including the provision for Starter Homes (the details of which will be confirmed over the coming months through the emerging regulation).

1.1.6 In this context of the District Valuer Services (“DVS”), part of the Valuation Office Agency, has been commissioned by the Council to undertake a high level review of viability across the County. DVS provides valuation advice to public bodies throughout the UK. It has extensive experience in undertaking development appraisals and employs specialists in development work.

2. VIABILITY METHODOLOGY

2.1 National Planning Policy Framework (“NPPF”)

2.1.1 Whole Plan and CIL Viability Assessments should be undertaken in the context of the National Planning Policy Framework (“NPPF”) March 2012. This has a section entitled “Ensuring viability and deliverability”:

“Pursuing sustainable development requires careful attention to viability and costs in plan-making and decision-taking. Plans should be deliverable. Therefore, the sites and the scale of development identified in the plan should not be subject to such a scale of obligations and policy burdens that their ability to be developed viably is threatened. To ensure viability, the costs of any requirements likely to be applied to development, such as requirements for affordable housing, standards, infrastructure contributions or other requirements should, when taking account of the normal cost of development and mitigation, provide competitive returns to a willing land owner and willing developer to enable the development to be deliverable” (Paragraph 173)

“Local planning authorities should set out their policy on local standards in the Local Plan, including requirements for affordable housing. They should assess the likely cumulative impacts on development in their area of all existing and proposed local standards, supplementary planning documents and policies that support the development plan, when added to nationally required standards. In order to be appropriate, the cumulative impact of these standards and policies should not put implementation of the plan at serious risk, and should facilitate development throughout the economic cycle. Evidence supporting the assessment should be proportionate, using only appropriate available evidence.” (Paragraph 174)

“Community Infrastructure Levy charges should be worked up and tested alongside the Local Plan. The Community Infrastructure Levy should support and incentivise new development, particularly by placing control over a meaningful proportion of the funds raised with the neighbourhoods where development takes place.” (Paragraph 175)

2.2 National Planning Policy Guidance (“NPPG”)

2.2.1 Furthermore, a Whole Plan and CIL Viability Assessment should also have regard to National Planning Policy Guidance, including specifically:

“A charging authority should use an area-based approach, involving a broad test of viability across their area, as the evidence base to underpin their charge. The authority will need to be able to show why they consider that the proposed levy rate or rates set an appropriate balance between the need to fund infrastructure and the potential implications for the economic viability of development across their area”. (Paragraph 019, as revised June 2014)

“It would be appropriate to ensure that a ‘buffer’ or margin is included, so that the levy rate is able to support development when economic circumstances adjust”. (Paragraph 019, as revised June 2014)

2.2.2 In undertaking a Whole Plan and CIL Viability Assessment it is therefore vital to adopt an evidence based approach, which seeks to seeks to ensure that any affordable housing provisions / CIL charges recommended do not undermine viability.

2.3 Professional Guidance for Viability Assessments

2.3.1 Surveyors are now assisted by two relatively recent publications, although the guidance between each is somewhat contradictory. We have commented on each publication as follows:

“Financial viability in planning” August 2012 by the Royal Institution of Chartered Surveyors (RICS):

Para 2.5.2, Box 10, “…nature of the applicant should normally be disregarded as should the benefits or dis-benefits that are unique to the applicant.”

2.3.2 Thus, appraisals should be done assuming hypothetical, typical landowners and developers and the views and aspirations of the actual owner are not relevant if these views differ from general market practice.

Para 2.3.2, Box 7, “Site value should equate to the market value subject to the following assumption: that the value has regard to the development plan policies and all other material planning considerations and disregards that which is contrary to the development plan.”

2.3.3 As indicated above, this refers to the site value as usually being assessed by means of a residual development appraisal. However, the suggestion seems to be that planning policies should be fixed and land value subject to change (which contradicts the view of the landowner having a minimum land value below which they would sell).

Para 2.1.2 “It follows, for example, that the land value is flexible and not a fixed figure to the extent that Site Value has to be determined as part of the viability assessment.”

2.3.4 This appears to support the above view that it is the Council’s policy which drives the land value, not the other way round. However, the RICS document does acknowledge that the flexibility in land value cannot result in the value going below the Current Use Value (“CUV”), stating:

Para 3.4.4 “The return to the landowner will be in the form of a land value in excess of current use value but it would be inappropriate to assume an uplift based on set percentages.”

2.3.5 This appears to support the view of setting a land value (often referred to as the “Threshold Lane Value” or “TLV”) for development appraisals, which is to somehow be linked to the Current Use Value (“CUV”). However, no guidance is given as to how to determine the link between the CUV and the TLV.

2.3.6 Furthermore, in particular no guidance is given to assessing greenfield land, where the CUV may only be £12,500 - £25,000 per Ha and clearly a TLV only slightly above the CUV would not represent a sufficient incentive for a landowner to sell for development.

“Viability Testing Local Plans” June 2012 by the Local Housing Delivery Group (“The Harman Review”).

Pg 29 “We recommend that the Threshold Land Value is based on a premium over current use values and credible alternative use value (noting the exceptions below)”

2.3.7 This therefore contradicts the guidance provided by the RICS, where adopting a percentage uplift above the CUV is not recommended.

2.3.8 One of the exceptions referred to relates to “non-urban” and “greenfield” sites.

Pg 30 “ It is widely recognized that this approach [i.e. a percentage increase over CUV] can be less straight forward for non urban sites or urban extensions, where land owners are rarely forced or distressed sellers…This is particularly the case in relation to large greenfield sites…Accordingly, the uplift to current use value sought by the landowners will invariably be significantly higher than in an urban context and requires very careful consideration”.

2.3.9 This does not mean that an assessment of the CUV has no part to play in the process of assessing greenfield sites. A typical landowner will still want to know what the value of his/her site is without the planning permission applied for, and then judge by how much, if at all, the CUV increases when planning consent is granted. The difference is that, for urban brownfield sites a premium uplift of circa 25 – 50% of the CUV may be deemed sufficient to incentivize a landowner to sell (e.g. if the CUV is £200,000 per Ha, applying a 50% uplift would mean a TLV of £300,000 per Ha, which would be attractive to a landowner). For a greenfield site, if the CUV is only say £10,000 per Ha then a 50% uplift (i.e. a TLV of £15,000 per Ha) would clearly not incentivize a landowner to release the land for development. In reality, the ‘uplift’ would need to be more like 15 – 25 times (or more) the CUV.

2.3.10 In terms of how to evidence the approach to greenfield sites the document goes on to say:

Pg 30 “…local sources should be used to provide a view on market values (the ‘going rate’), as a means of giving a further sense check on the outcome of the current use plus premium calculation”.

Pg 30 “…for sites of this nature [i.e. greenfield], it will be necessary to make greater use of benchmarks, taking into account of local partner views on market data and information on typical minimum price provisions used within developer / site promoter agreements for sites of this nature”.

2.3.11 This therefore seems to advocate using evidence of TLVs identified as part of the viability process, as well as using market transactions as a general ‘sense check’.

2.3.12 However, it is stressed that there are limitations of assessing land sales. Assessing actual land sales for the purposes of identifying a TLV is not straight forward, as the price someone is willing to pay for a piece of development land (and indeed accept for a piece of development land) is subject to many factors, which includes:

- The type of development that could be brought forward. - The gross the net ratio (it may be that a large section of the site is constrained and cannot be developed). - The potential density any of proposed scheme. - Whether any third parties benefit from a ransom position preventing access to the site. - Whether there are any title constraints. - The abnormal costs associated with developing the site (i.e. any untypical cost, such as deep pile foundations to mitigate ground concerns, flooding mitigation works etc). - The planning policies that relate to a specific type of scheme. - Whether a purchaser benefits from synergistic value (formerly known as marriage value) with any neighbouring land they already own or will own in the future. - Whether a vendor is under financial pressure to sell. - Whether a house-builder is keen to have a presence in a particular location etc etc.

2.3.13 There are therefore a number of factors which impact the price someone is willing to pay for development land, because ultimately each development site is unique. For example, you could have 2 sites next to each other sold at the same time, each being 5 Ha and the same shape. However, one may have significant flooding issues and a poor access route, whereas the other may have no concerns. The price paid for the land affected by ‘abnormal’ development costs (i.e. in this case flooding and a poor access route) would therefore most likely be significantly less than the unaffected site. The reasons for the difference in value, though, would not be identifiable by simply looking at the price paid for the land on a ‘per Ha’ basis.

2.3.14 This means it is extremely difficult to compare two land transactions because in reality only some of the factors outlined above (which is not an exhaustive list) will be known to the analysing surveyor.

2.3.15 In this respect, land transactions are useful in providing a ‘sense check’ but they should not be regarded a providing a definitive view on threshold land values, particularly on a ‘price per Ha’ basis, because in most cases the full details of the transaction (and the factors which impact value) will not be known. Land sales should be therefore considered after the other sources of evidence identified, and provide a ‘sense check’ only.

2.4 The Financial Appraisal Model / The ‘Residual’ Method

2.4.1 As indicated above, the professional guidance advocates adopting the ‘residual’ method when considering viability assessments. This is an established valuation approach, which as a concept is relatively straight forward and can be illustrated by the following equation:

Gross Development Value (i.e. Total Revenue)

Less

Development Costs (Land Acquisition + Construction + Fees + Finance) Equals

Residue for Developer’s Profit and Risk

2.4.2 However, please note it is not a requirement of an appraisal that the residue is always equal to the developer’s profit. The model can be amended so that developer’s profit is a fixed input and say the land value is shown as the residue. If this were the case the model would be amended to:

Completed Development Value (i.e. Total Revenue) Less

Development Costs (Developer’s Profit and Risk + Construction + Fees + Finance) Equals

Residue for Land Acquisition

2.4.3 Equally, the land value and developer’s profit can be inputted as fixed figures, representing the minimum profit and minimum land value considered necessary for the scheme to be implemented. The subsequent residue could therefore be used to show the monies available for planning policy contributions.

2.4.4 However, and whilst a simple concept, it is stressed that in reality the residual method often becomes a complicated and detailed approach. This is because the methodology inherently requires a wide variety of inputs to be factored into the assessment, all of which are subject to variance (e.g. sales values, build costs, professional fees, abnormal works, Council policies, profit, marketing, finance etc). All of these inputs need to be considered carefully, as potentially relatively small variances to one or two inputs could have a significant impact on the results of the assessment. This inherent flaw in the methodology is recognised by the RICS and wider industry, and as a result ‘sensitivity’ testing is recommended to try and minimise the impact of these potential variances. Nevertheless, the industry still considers this to be the most appropriate methodology for assessing development sites and appraising viability.

2.4.5 Notwithstanding the flaws in the methodology, for the purposes of a Whole Plan and CIL Viability Assessment, and based on our experience, we would advocate the approach of fixing the land value and the developer’s profit at average levels considered appropriate for the scheme to be implemented, which would then be inputted into an appraisal together with all the other general costs of development (including build costs, professional fees, finance etc). However, at this point any affordable housing contributions or CIL charges would be excluded from the appraisal. The costs would then be deducted from the Gross Development Value (or total revenue). If the appraisal produces a surplus, this surplus could then be shared out as affordable housing / CIL contributions. If the scheme produces a deficit the scheme would be regarded as being unviable, even without any affordable housing contributions / CIL charges applied.

2.4.6 The advantage of approaching the viability assessment in this way is that the scheme would clearly show whether a scheme was viable or not (by demonstrating a surplus or a deficit). If the scheme did produce a surplus, and was subsequently regarded as being viable, then at this point affordable housing contributions / CIL charges could be built into the appraisal and the viability re-tested on a ‘trial and error’ basis until an agreed point.

2.4.7 The negative side to this approach is that there would have to be a pre- determined ‘level’ at which a scheme was regarded as being acceptably viable. The most obvious level in this regard would be if the scheme resulted in a ‘zero’ return (or thereabouts), in other words the scheme didn’t produce a surplus or produced a deficit.

2.4.8 However, some may argue that this is at the ‘extremes’ or ‘breaking point’ of viability, and therefore is not in line with the sentiment of the NPPF or NPPG. In this respect, they may argue for a fixed level of surplus as the minimum ‘buffer’ to ensure a viable scheme. In other words, when the scheme was being re-tested and affordable housing contributions / CIL charges being factored in on a ‘trial and error’ basis, the scheme would still need to produce a surplus as a buffer to ensure the scheme was comfortably viable thus minimising the risk of the Council’s policies undermining viability (this figure would be pre-set, e.g. £100,000). It could be argued that this approach would provide an adequate buffer on viability, as advocated in the NPPG and NPPF.

2.4.9 That said, and based on our experience, we would argue to the contrary and suggest that a ‘zero’ return in the appraisal is sufficient to provide an adequate buffer. In our experience, if a scheme produced a relatively small deficit then this would not undermine implementation, as a developer would look to potentially renegotiate the land value, consider value engineering or simply accept a slightly reduced profit margin as a means of ensuring the scheme was still undertaken. In other words, and based on our experience, we do not believe that a developer would ‘walk away’ from a scheme if it ultimately produced a small deficit. In this regard, there is already an implicit buffer allowance in a viability appraisal, therefore a scheme producing a zero return would not be at the extremes or breaking point of viability, as the reality is a developer would allow a small amount of ‘flex’ in their profit margin / build costs to cover such eventualities.

2.4.10 As indicated above, sensitivity testing can also be used to ensure robust conclusions are reached, helping to minimise the risk of the Council’s policies undermining viability and limiting deliverability. This involves running a number of scenarios based on variables in key inputs. For example,

(i) Variances in scheme density (ii) Variances in build costs (iii) Variances to developer’s profit (iv) Variances in Council Policies (v) Changes in time – inflation rates applied to certain inputs, such as houses and sales and build costs

2.4.11 The purpose of the sensitivity testing is an attempt to identify the best and worst case positions of viability. From this more robust conclusions can be reached in terms of viability.

2.4.12 That said, we would stress that ‘over testing’ can produce excessive data which can prove more difficult to analyse (making it difficult to reach meaningful conclusions). We would therefore recommend that sensitivity analysis is adopted, however this is limited to a handful of key appraisal inputs.

2.5 Summary

2.5.1 The NPPF and NPPG is clear that Council Policies should not be set at levels which could potentially undermine the viability and deliverability of development projects. Whole Plan and CIL Viability Assessments should therefore be undertaken in this context.

2.5.2 The relevant professional guidance advocates the use of the residual method for the assessment of viability. This is an established and RICS approved valuation methodology.

2.5.3 That said, there are inherent flaws in the residual method, due to the wide number of inputs often required, each of which are potentially subject to variance. To minimise this impact the professional guidance recommends sensitivity testing is adopted, which is also advocated in Whole Plan and CIL Viability Assessments.

2.5.4 The residual method can be presented in different ways, with the land value, profit or even Council policies set as the ‘residual’ or outcome of the appraisal. Based on our experience we would advocate fixing the land value and developer’s profit at pre-agreed levels, and therefore the ‘residual’ (if any) could be used to meet Council policies. We consider this to be the simplest way of approaching Whole Plan and CIL Viability Assessments.

2.5.5 However, if this approach is adopted there is likely to be a debate about what constitutes an appropriate buffer in the assessment to ensure the Council’s policies do not risk undermining viability. Our view is that if a scheme returns a zero result (i.e. no deficit or surplus) when the Council’s policies are included then the scheme should be regarded as viable. Stakeholders may argue that actually a small surplus (say £50,000 or even £100,000) should be generated to ensure a suitable buffer. This is subject to debate and would need to be considered in detail as part of a Whole Plan and CIL Viability Assessment.

3. DRAFT VIABILITY ASSUMPTIONS

3.1 Introduction

3.1.1 The NPPG / NPPF and professional guidance advocate an evidence based approach to viability. The appraisal inputs should therefore be underpinned by market evidence.

3.1.2 For the purposes of this study we have been asked to consider appraisal inputs by drawing on market evidence. The intention is to identify draft assumptions which can be form part of the research / debate necessary as part of a future Whole Plan and CIL Viability Assessment.

3.1.3 DVS has a dedicated team for viability work who undertake viability appraisals of individual sites on a daily basis. These appraisals are typically undertaken on an independent basis at the pre-determination stage of a planning application, and are used in the context of setting an appropriate affordable housing provision. We have drawn on this market experience and evidence to identify draft appraisal input assumptions.

3.1.4 This section of the report therefore sets out draft appraisal inputs, referencing evidence sources used to reach these draft conclusions.

3.2 ‘Real’ Site Assessments Or Hypothetical Site Types

3.2.1 DVS have undertaken various area wide studies, involving both ‘real’ site assessments (i.e. appraising a sample of actual development sites) and hypothetical sites.

3.2.2 Both methods are considered to be reasonable approaches for the purposes of a Whole Plan and CIL Viability Assessment

3.2.3 From our experience Council’s tend to prefer hypothetical site types, as this allows an assessment of the same site type in different locations, therefore clearly demonstrates changes in viability across local housing markets.

3.2.4 That said, an assessment of a ‘real’ development site has the advantage of more detail on likely abnormal costs, which is a key consideration of viability assessments.

3.3 Local Market Conditions

3.3.1 Regardless of whether the approach adopts an assessment of ‘real’ development sites or hypothetical site types, in either case it is important to ensure the sites appraised cover the key market areas of the district, to ensure geographical variances in site locations are understood when reaching conclusions on affordable housing provisions / CIL charges.

3.4 Gross And Net Developable Areas

3.4.1 Differentiating between the gross area and the net developable area of a site (and identifying an appropriate ratio between the two) is important in the assessment of viability, as the amount of land that can be physically developed in the context of planning requirements (as opposed to land which needs to be protected or cannot be physically developed) can have a significant impact on the appraisal inputs and therefore the conclusions of the viability assessment.

3.4.2 Firstly, it is important to define what ‘net developable area’ means. We would suggest the following as being a reasonable definition:

Net developable area refers to the total area of land available for development, not necessarily the total area of a property itself. It does not include open space, drainage land, regional roads and land used for other public facilities.

In relation to housing sites, net developable area excludes main roads, buffer zones, structural landscaping, other uses such as local shops, school sites where required, and general open space and, wherever possible, features of natural heritage interest. Net developable area includes local access roads, parking areas, footpaths and local open space such as children’s play areas and amenity space.

3.4.3 Secondly, the ratio between gross and net developable area should be considered, particularly if hypothetical sites are being considered as part of the Whole Plan and CIL Viability Assessment. We have reviewed a number of individual viability assessments appraised by DVS in recent years to identify levels of gross to net ratios, detailed as follows (please note as these cases contain sensitive commercial information we have not provided the full address details or the parties involved):

Table 1 – Gross to net ratio evidence

Location Gross Net Net as Capacity area (Ha) area (Ha) % of gross dwellings Durham (1) 11.56 10.19 88.15% 271 Northumberland 11.28 8.14 72.16% 286 Bradford 9.33 8.47 90.78% 272 Leeds (1) 7.00 5.95 85.00% 207 Leeds (2) 7.68 6.47 84.24% 181 Durham (2) 5.59 5.15 92.13% 167 Normanton 4.30 3.10 72.09% 142 Boston 3.57 3.20 89.64% 108 Durham (3) 2.90 2.63 90.69% 91 Average 7.02 5.92 84.99% 192

3.4.4 For schemes providing between circa 90 and 300 dwellings we have identified 9 sites (3 in the County of Durham), which show an average gross size of 7.02 Ha and an average capacity of 192 dwellings. This produces an average gross to net ratio of just under 85%.

3.4.5 Clearly gross to net ratios will differ from site to site and there may be legitimate reasons why these are high or indeed low. However, for an ‘average’ view this is considered to be reasonable.

3.5 Capacity / Density

3.5.1 It is also important, again particularly when considering hypothetical site types, to identify an appropriate capacity / density level for the purposes of the appraisal. This is because fluctuations in the amount of development that can be provided in the net developable area with potentially have a significant impact on the appraisal inputs.

3.5.2 Based on our experience we are of the view that dwellings per hectare will vary depending on the nature of the scheme, the product being provided and the location. We have analysed 12 viability appraisals for housing schemes submitted by applicants since Aug 2013 to Aug 15, ranging from 0.85 Ha to 26.09 Ha net developable acres. This evidence shows a range of circa 28 to 47 units per net acre (average of just over 35 units per net developable hectare). However, please note a number of the schemes in the sample contained a high proportion of detached units (as they were located in higher value areas) which serves to reduce the overall average of the sample.

3.5.3 It could be argued that for larger developments, say over 50 units, which are most likely to be implemented by volume house builders, a slightly higher rate could be achieved (e.g. more like 37/38 dwellings per net developable hectare). This is because volume house builders are well versed in maximizing the net developable space available through the use of well-established housing products (i.e. house designs that are used again and again at different schemes in different locations). However, this would need to be explored more fully through any assessment undertaken.

3.5.4 In terms of density, again this will ultimately depend on the nature of the scheme and the type of product being offered. For example, a higher proportion of bungalows would reduce the overall density of a scheme, whereas apartments or a 2.5 storey product could help achieve an increased rate. However, from our experience, and having debated this with developers and house builders, we are of the view that on average density levels typically do not exceed circa 3,400 sq m per net hectare.

3.5.5 Analysing the same 12 appraisals referred to above in 3.5.2 we have identified a range of 2,468 to 3,809 sq m per net Ha. The average equates to just under 3,000 sq m per net Ha. This appears to support the notion that, on average, density levels should not exceed circa 3,400 sq m per net hectare. However, it should be noted that a number of the sites identified in the sample contained a higher proportion of detached dwellings as they were located in higher value areas. This serves to reduce the overall average. Ideally further evidence should therefore be identified as part of a Whole Plan and CIL Viability Assessment.

3.6 Dwelling Mix And Sizes

3.6.1 A variety of housing types can be considered for the purposes of a Whole Plan and CIL Viability Assessment, including: traditional detached, semi-detached and terraced 2 storey housing, 2.5 / 3 storey variations of these house types, bungalows and apartments.

3.6.2 Prior to the market ‘crash’ in 2008 developers were regularly looking to apartments and 3 storey variations of semi-detached and terraced dwellings as a way to increase scheme densities and maximise revenues.

3.6.3 3 storey town houses were particularly popular as a way of maximising the space available to the family market, without having to increase the plot sizes (enabling builders to maximize the amount of usable space on a scheme). They typically involved relatively narrow structures where the layout of the traditional house was re-imagined (e.g. kitchens placed on 1st floors, bedrooms on ground floors etc).

3.6.4 As for apartments, these were equally popular with house builders prior to 2008, with demand primarily being driven by buy-to-let investors, who were keen to take advantage of favourable buy-to-let mortgage products and strong capital growth in the residential market. The result was an increase in apartments outside of the traditional city / town centre locations, with apartments becoming a regular fixture in suburban / edge of settlement housing developments. However, in the wake of the crash the buy-to-let market suffered a sharp decline. As such demand for apartments fell, which in turn meant values decreased significantly. In many cases developers were left with apartments that they were unable to sell unless heavily discounted. In light of this recent market experience, in the current climate house builders are still taking a more cautious approach to the apartment sector.

3.6.5 Since the downturn in the market there has therefore been a general shift in demand, with more traditional 2 storey products proving significantly more popular in the market place than the 3 storey variations (which in turn has resulted in a sharp general fall in the values achieved for the 3 storey house types). Recognising this, house-builders have largely turned away from 3 storey and apartment products seen at the height of the market between 2004 and 2007. Instead, the majority of house builders are now delivering ‘tried and tested’ traditional 2 storey products.

3.6.6 That said, there has been a recent increased use of 2.5 storey housing (i.e. extra bedrooms are built into the roof void). The benefit of this option is that an increased floor space is achieved without having to re-work the layout of the traditional house i.e. the kitchen and the living room remain at ground floor level with bedrooms on the upper floors, which generally remains more popular with purchasers.

3.6.7 For the above reasons, it may be that a Whole Plan and CIL Viability Assessment does not therefore look to factor in 3 storey houses or apartments in its appraisal inputs. However, the prevailing market conditions should be assessed before specific house types are adopted.

3.6.8 In terms of identifying appropriate average dwelling sizes, this should be evidence based.

3.6.9 In this regard, we have analysed new build developments that have been implemented across County Durham since Jan 2012 and have identified the following broad range of house sizes (which allows for a mix of 2 / 2.5 storey units):

Detached house - 110 sq m Semi-detached house - 85 sq m Terraced house - 75 sq m

3.6.10 Please note, the above average dwelling sizes will be subject to change if the house types adopted vary from 2/ 2.5 storey products.

3.6.11 Once established, we would recommend the identified average dwelling sizes are applied to all the site types across all the Delivery Areas, to enable a comparison on a ‘like for like’ basis the different markets within the County.

3.7 Specification

3.7.1 In the market place, there will be some variation in the specification of the final dwellings; and in the degree of aspiration for high quality design. For the purposes of a Whole Plan and CIL Viability Assessment we recommend an assumption that the sites to be developed reflect an average design specification for that particular location (therefore in high value areas a better specification is allowed for than in lower value areas).

3.8 Affordable Rented Assumptions

3.8.1 For a Whole Plan and CIL Viability Assessment the appraisal needs to reflect the Council’s policies. If the Council’s policy requires on-site affordable housing, then this assumption should be factored into the appraisals.

3.8.2 The Home and Communities Agency (“HCA”) publication “The Regulatory Framework For Social Housing in England From April 2012 – Annex A Rent Standard Guidance” March 2012 defines Affordable Rent as follows:

“Homes let on Affordable Rent terms fall within the definition of social housing but are exempt from the full requirements of rent restructuring” Pg 13 Paragraph 2.

“Homes let on Affordable Rent terms should be made available at a rent level of up to 80% of gross market rents (inclusive of service charges where applicable)”. Pg 13 Paragraph 4.

“The maximum annual rent increase on an Affordable Rent property will be the Retail Price Index (RPI) + 0.5%...On each occasion that an AR tenancy is issued for a property…providers are required to re-set the rent based on a new valuation, to ensure that it remains at no more than 80% of the relevant market rent. This requirement overrides the RPI + 0.5% limit” Pgs 14 – 15.

3.8.3 In short, Affordable Rented units are therefore calculated in relation to the private sector, with a maximum charge of 80% of the Market Rent. This is combined with an annual increase cap of RPI + 0.5%, albeit whenever a new tenancy is entered into the affordable rent reverts to a maximum of 80% of the Market Rent, overriding the annual increase. However, the details of the calculation could conceivably be subject to change in the future and would need to review as part of the assessment.

3.8.4 In terms of identifying appropriate transfer values for Affordable Rented units we typically adopt the following methodologies:

(i) Rent and yield – arrive at a transfer value by identifying the net rental income to the Registered Provider and capitalizing this using an appropriate yield.

(ii) Comparable – transfer values submitted by applicants as part of their own viability appraisals.

3.8.5 For method (i) we assume that a Registered Provider would look to charge the maximum allowed, being 80% of the Market Rent. We also assume that any service charge would only cover costs incurred (i.e. no profit is made from the service charge). We would not therefore include service charges in our assessment.

3.8.6 We recommend an assessment of Market Rents across County Durham, to take into account market fluctuations across the region. Once an average Market Rent is identified for each housing type in each location, a simple calculation of 80% of this figure (reflecting the maximum chargeable rent outlined above, being 80% of Market Rent) can then be applied to arrive at the gross rental income.

3.8.7 From this we look to ‘net’ down the gross Affordable Rent by making allowances for management, bad debts, voids and repairs / maintenance. We typically consider fixed costs of £500 per annum for management and £600 per annum for general repairs / maintenance to be reasonable. We also normally make an allowance of 3% on the gross Affordable Rent to reflect bad / debts and voids.

3.8.8 Once a net rental income has been established we then apply a capitalisation rate (yield) to arrive at the transfer value (rounded up or down to nearest £5k). Yields fluctuate depending on market conditions, although in the last 12 to 24 months we have typically applied a yield of 6% to the net rental income.

3.8.9 As an indication of the potential results of this approach, in the context of the requirements of this report, we have looked at a sample of 14 modern houses across County Durham, which are either currently available to let or have recently been let, as follows:

Table 2 – Sample of rented modern houses & affordable rent calculation

Market Afford Rent Rent Transfer Street Locality Type Bed p.c.m p.a. Value Highfield Rise Chester-le-St Det 4 950 7,746 130,000 Lytham Close Consett Det 4 850 6,815 115,000 Atkinson Grove Shotton Colliery Det 4 850 6,815 115,000 Blomsley Close Newton Aycliffe Det 4 750 5,884 100,000 Brookes Rise Langley Moor Det 4 725 5,651 95,000 Pennine View Sherburn Hill Semi 3 575 4,254 70,000 Aysgarth Close Newton Aycliffe Semi 4 550 4,022 65,000 Hind Court Newton Aycliffe Semi 3 550 4,022 65,000 Hilltop View Langley Park Semi 3 550 4,022 65,000 Hedley Court Bearpark Semi 3 550 4,022 65,000 Donnington Pl Consett Terr 3 595 4,441 75,000 Lowland Rd Brandon Terr 3 575 4,254 70,000 Tyne Vale Stanley Terr 3 575 4,254 70,000 Habgood Drive Durham Terr 3 500 3,556 60,000

3.8.10 Having identified a broad transfer value for each house we have then looked to identify this as a ‘rate per sq m’. To do this, we have divided the estimated transfer value by the average house value used in this study for each housing type (i.e. for the detached an average house size of 110 sq m, semi-detached 85 sq m and terraced housing 75 sq m). For the detached dwellings this produces a transfer value rate per sq m of circa £850 to £1,200 per sq m (depending on the specific location of the house). For the semi-detached and terraced dwellings this range reduces to circa £750 to £975 per sq m.

3.8.11 The broad transfer values identified on a ‘rate per sq m’ can then been compared to the market values identified. For example, if for detached dwellings across County Durham we arrive at a value range of say £1,650 to £2,300 per sq m, the above transfer values range of £850 to £1,200 per sq m therefore broadly equates to 50% of the market value. Likewise, for semi- detached and terraced housing if we arrive at a market value range of £1,525 to £2,200 per sq m, in percentage terms the above transfer value range of £750 - £975 per sq m would equate to circa 45 – 50% of the market value.

3.8.12 In terms of method (ii), typically we see affordable rented units in appraisals received from developers / house builders roughly equating to circa 50 – 55% of market value.

3.8.13 However, at the current time it is our understanding that Registered Providers are adopting a cautious approach when taking on new affordable units. The National Housing Federation published a briefing paper in June 2015 in the wake of the Government’s Summer 2015 Budget. There is some concern in the industry from Registered Providers that measures due to be introduced will impact on their income levels. As a consequence there is a suggestion that there will be a downward pressure on Transfer Values, at least in the short term. Whilst it remains to be seen whether these current concerns will translate into real reductions in Transfer Values, we believe it is prudent to take a cautious approach on this matter.

3.9 Intermediate / Shared Ownership Assumptions

3.9.1 As part of the Government’s Help to Buy initiative, the Government defines Intermediate/Shared Ownership as being a scheme provided through housing associations whereby the purchaser buys a share of the home (between 25 – 75% of the home’s value) and pays a rent on the remaining share. Typically we see intermediate/shared ownership units in appraisals received from developers/house builders equating to circa 67.5%/70% of market value.

3.9.2 However, given that Registered Providers are currently adopting a cautious approach when acquiring affordable units this is something that should be considered carefully as part of a Whole Plan and CIL Viability Assessment.

3.10 Starter Homes

3.10.1 The research and appraisals for this study were undertaken prior to the enactment of the Housing and Planning Act, which imposes a requirement for Starter Homes. Any future study will need to factor this into the appraisal testing. Starter Homes are defined as being a home available only to first time buyers under 40, paying up to 80% of the Market Value (up to a maximum of £250,000 outside London). However, much of the detail is still to be confirmed through emerging regulation.

3.11 ‘Basic’ Build Costs

3.11.1 When assessing build costs we have regard to a variety of data sources, including:

(i) Building Cost Information Service (BCIS) of the RICS. (ii) ‘Live’ tender information from the Homes and Communities Agency (“HCA”). The HCA has a tender framework called the Delivery Partner Panel 2 (“DPP2”). (iii) We also review appraisals submitted by developers / agents / house builders as part of viability assessments and planning appeals. (iv) Quantity Surveyor reports

3.11.2 The BCIS is not considered to be particularly robust evidence when assessing larger schemes (40/50 dwellings or more). In Jan 2016 DVS undertook an analysis of the BCIS data recorded since Jan 2011. Of the 106 housing schemes submitted during this period, 68% related to schemes comprising 20 or less units. Only 7.55% of the data related to schemes over 50 homes. It is also stressed that volume house-builders (who would most likely develop large schemes) do not contribute to the data. It is generally accepted that volume house-builders are able to construct houses at a cheaper rate (owing to their ability to bulk-buy materials, offer more regular work and negotiate cheaper contracts with sub-contractors etc). As the cheaper volume house-builder costs are not reflected by the BCIS, the data can be regarded as being inherently high, at least when trying to determine the construction costs for a large scheme. The data, therefore, should be considered in this context.

3.11.3 The current BCIS data for general housing costs in Durham shows a lower quartile figure of £854 per sq m, median figure of £963 per sq m and upper quartile of £1,101 per sq m.

3.11.4 In terms of other data sources, the DPP2 was created primarily to speed up the disposal of surplus public sector land to enable residential construction to proceed. In Quarter 4 2013 25 house builders were selected to be in included on the panel. As part of the process panel members are invited to submit tenders on individual sites, with the intention being that by ‘bidding’ against one another the land returns will be maximized. This is therefore considered to be a strong source of information as it gives a clear indication of what house builders are willing / able to build houses for in a competitive situation.

3.11.5 In Jan 2016 the HCA provided average figures for 81 developments (with a mean 231 residences) the mean build cost ascertained from tender bids is £845 per sq m. As this data is derived primarily from volume house builders it is considered to be appropriate when assessing larger schemes.

3.11.6 However, it is acknowledged that the figure of £866 per sq m has been attached a “weighting” of 100, which is in line with the approach the BCIS takes to show regional variances. Different areas are given different weightings by the BCIS, for example I note Durham currently has a weighting of 99 (until recently this was at 95). Whilst it is unclear on what basis these weightings are assessed, in this instance we consider it reasonable to apply the current weighting to the data. So, applying a weighting of 99 to £845 per sq m would decrease the build costs to say £837 per sq m.

3.11.7 In terms of data received on individual viability appraisals, Durham County Council have provided further information on viability appraisals they have received in recent years. For confidentiality reasons we are unable to provide full details of viability appraisals received from applicants on individual cases. However, we are able to summarize the details and can confirm that these are all real cases that have been assessed or are currently being assessed by Durham County Council (please note the majority of the cases date back to 2011 and 2012 which are considered to be too historic for the purposes of assessing build costs). We have therefore limited the evidence to 2013 and 2014 appraisals:

 Greenfield site in Western DL12 (Teesdale) Delivery Area. In a high value area (in the context of the County), gross site area just under 2 hectares. Planning application for a scheme of 64 dwellings. National house builder submitted a viability appraisal in 2014, indicated a build cost equivalent to the BCIS definition of £900 per sq m.

 Greenfield site in Northern Delivery Area. In a low value area. Planning application for a scheme of 76 dwellings. National house builder submitted a viability appraisal in 2013, indicated a build cost equivalent to the BCIS definition of £640 per sq m.

 Greenfield site in Southern Delivery Area. In a low value area. Planning application for a scheme of 136 dwellings. National house builder submitted a viability appraisal in 2013, indicated a build cost equivalent to the BCIS definition of £640 per sq m.

 Greenfield site in Southern Delivery Area. In a low value area. Planning application for a scheme of 66 dwellings. Landowner submitted a viability appraisal in 2013, indicated a build cost equivalent to the BCIS definition of £879 per sq m.

3.11.8 Furthermore, the Northern / East Midlands viability team of DVS undertakes individual viability appraisals for over 30 local authorities (covering the area down from Northumberland to South Derbyshire and across to The Wash). We therefore receive a wide range of viability appraisals across this region. This information is useful for assessing how developers / agents / house builders interpret the market across these areas. Again, for confidentiality reasons we are unable to provide full details of viability appraisals received from applicants on individual cases. However, we are able to summarize the details and can confirm that these are all real cases that have been assessed or are currently being assessed by DVS. Please note, we have concentrated on larger schemes (50 dwellings or more) and limited the information to files where DVS were instructed from Jan 2015 onwards:

 Greenfield site in Lincolnshire in a medium value area, gross site area just under 10 acres. Planning application for a scheme of 76 dwellings. Regional house builder submitted a viability appraisal in September 2015, indicated a build cost equivalent to the BCIS definition of £712 per sq m.

 Greenfield site in Lincolnshire in a low value area, gross site area just under 24 acres. Planning application for a scheme of 327 dwellings. Regional firm of chartered surveyors September 2015, indicated a build cost equivalent to the BCIS definition of £884 per sq m.

 Strategic greenfield site in North Yorkshire in a high value area, gross site area 124 acres. Outline planning application for a scheme of 900 dwellings plus commercial / retail. National volume house builder submitted a viability appraisal in Oct 2015, indicating a build cost equivalent to the BCIS definition of £721 per sq m.

 Greenfield site in Lincolnshire in medium value area, gross site area just under 9 acres. Full planning application for scheme of 108 dwellings. Regional house builder submitted a viability appraisal in April 2015, indicating a build cost equivalent to the BCIS definition (i.e. includes preliminaries, excludes contingency, externals, abnormals and professional fees) of £873 per sq m.

 Brownfield site in Derbyshire in a lower value area, gross site area just over 44 acres. Outline planning application for a scheme of 600 dwellings. National firm of chartered surveyors submitted a viability appraisal in March 2015, indicating a build cost equivalent to the BCIS definition of £724 per sq m.

 Greenfield site in Northumberland in a low value area, gross site area circa 18 acres. Reserved matters application for a scheme of over 200 dwellings. Council have instructed me to adopt a build cost of £893 per sq m in my appraisal (which is currently ongoing). I understand this figure has been agreed with the applicant prior to my involvement.

 Former Hospital site in West Yorkshire in a low value area, gross site area circa 9 acres. Outline planning application for a scheme of 100 dwellings. Regional firm of chartered surveyors submitted a viability appraisal in May 2015, indicating a build cost equivalent to the BCIS definition of £772 per sq m.

 Greenfield site in West Yorkshire in a medium value area, gross site area circa 40 acres. Outline planning application for a scheme of 560 dwellings plus some additional retail / commercial. National firm of chartered surveyors submitted a viability appraisal in Feb 2015, indicating a build cost equivalent to the BCIS definition of £829 per sq m.

3.11.9 The range shown above is £712 - £893 per sq m, which an average figure of £801 per sq m.

3.11.10 Finally, please see Appendix 2, which is a publicly available study undertaken by a private practice Quantity Surveyor (Gardiner and Theobald, dated Nov 2014). This was prepared on behalf of DTZ. This was in the context of an area wide CIL study being undertaken by DTZ on behalf of Wakefield Council (for information the Wakefield CIL Study received a recommendation for approval from the Planning Inspectorate Examiner in November 2015, and subject to Cabinet approval is proposed for adoption from 1st April 2016). The study concludes a reasonable build cost to be £80.10 per sq ft (£862.22 per sq m), which includes external costs. This figure is stated on Page 2 as being the “cost benchmarking of similar larger residential schemes” and is therefore likely to relate to schemes developed by volume house builders.

3.11.11 In terms of drawing a conclusion from the above information we would highlight two keys factors which we consider to be significant:

(i) For the larger schemes (say 50 units plus) that fall under this study it is assumed these would most likely attract volume house-builders.

(ii) Volume house builders are able to deliver to deliver schemes at reduced costs when compared to smaller local / regional builders.

3.11.12 In the context of the above evidence, for a typical 2 / 2.5 storey dwelling and for a scheme in excess of 50 dwellings a build cost equivalent to £840 per sq m appears reasonable. For schemes producing less than 50 units we are of the view that the BCIS median figure is appropriate, which is currently £963 per sq m.

3.11.13 Please note, the above does not include the costs associated with building garages, which would therefore need to be allowed for separately. Typically, we see single garages charged and circa £5,000 to £7,500 per unit, whereas double garages tend to be in the region of £10,000 to £15,000 per unit.

3.11.14 Furthermore, if other house types are considered appropriate when the Whole Plan and CIL Viability Assessment is undertaken (owing to the prevailing market conditions) then different build cost rates may be necessary. For example, an apartment block or a bungalow typically carry a higher cost per sq m when compared against a ‘typical’ 2 storey dwelling. Whatever conclusion is reached, this should be based on tangible evidence.

3.12 Externals / Infrastructure

3.12.1 In addition to the per sq m build costs described above, allowance needs to be made for a range of infrastructure costs – roads, drainage, and services within the site; parking, footpaths, landscaping and other external costs; as well as off-site costs for drainage and other services.

3.12.2 Many of these items will depend upon individual site circumstances and can only be estimated following a detailed assessment of each site. This is not practical within the scope of this study and therefore, based upon the experience of our Quantity Surveyors, a general allowance in relation to the build costs should be made.

3.12.3 Based on our experience, the standard approach to determining suitable infrastructure / external works as part of a viability assessment, and one that is commonly used in the industry, is to apply a percentage allowance to the basic build cost. Our experience is that, as a percentage of basic build cost, this tends to range from circa 15% to 20%, depending on the nature of the site.

3.12.4 Some developers argue that 20% of basic build costs is an appropriate average, but this may increase for larger projects.

3.12.5 We have subsequently looked to test this assumption, by again considering viability appraisals received from applicants, both from those received by Durham County Council and DVS.

3.12.6 Of the Durham County Council appraisals received, we identified 17 sites since 2011 (ranging from 8 to 425 dwellings). Please note as these cases contain sensitive commercial information we have not provided the full address details or the parties involved. The external costs identified range from 0% to 69%. The average across the sample equates to 18.25%, the median equates to 18.42%. Please note, the majority of the sample fell within the region of 15% to 20%.

3.12.7 For the DVS appraisals received, we identified 23 viability appraisals received during the last (circa) 2 years for mixed housing sites, covering a wide range of sites (from 5 to 900 dwellings). Please note as these cases contain sensitive commercial information we have not provided the full address details or the parties involved. The external costs identified range from 1.97% to 31.92%. The average across the sample equates to 18.54%, the median equates to 18.57%. Again, the majority of the sample fell within the range of 15% to 20%.

3.12.8 The data is less certain with regard to the notion that external costs automatically increase with the size of the scheme. For example, the 4 highest external costs recorded in the DVS sample (being 27.47% and 31.92% were for schemes of between 38 and 76 dwellings. There are examples of significantly larger housing schemes (ranging from 108 to 900 dwellings) that produced a lower external costs (ranging from 11.72% to 26.87%).

3.12.9 It should also be noted that the data above is derived from viability appraisals submitted by applicants. From experience, it is often the case that appraisals submitted by applicants adopt a ‘worst case’ scenario. Frankly, this is because it is within the interests of the applicant to show the worst case scenario, as this will ultimately put a downward pressure on the affordable housing provision that the scheme can viably support. In light of this, we routinely challenge viability appraisals submitted by applicants if we feel the worst case position has been presented, in an attempt to reach an ‘average’ position, which is considered more appropriate (and in line with the Guidance) when considering viability.

3.12.10 External / infrastructure costs are no exception, and if we / our in-house QS team feel that the costs presented are unnecessarily high given the nature of that particular scheme then we will challenge those costs. It may be that the costs are legitimate and proven, in which case we accept the position presented. However, if no supporting evidence is provided then the applicant will often look to revise their presented figures down. The figures above are submitted costs before we have undertaken a review. Some of these costs were subsequently amended down following a challenge from DVS, which brings down the average slightly.

3.12.11 We have also reviewed a number of area wide viability studies from the wider region. Please note a number of the area wide studies date back to 2013. This reflects the studies that were available in the public domain at the time of writing this report. This ‘lag’ is likely to be because of the time it takes for a CIL viability study to be undertaken and a CIL charge being implemented, for example the GVA Leeds viability CIL study is dated January 2013, however CIL was not introduced within Leeds until April 2015. However, some of the key principles are still considered to be relevant, despite dating back to 2013.

3.12.12 Furthermore, please note we have not referenced all of the studies identified when considering external costs. This is because in some of the studies we were unable to identify what had been allowed for in the external costs. For example, the GVA Leeds viability study adopted an ‘all in’ build cost on a rate per sq m, which included the construction cost of the houses, preliminaries and external costs. We were therefore unable to extrapolate what had been specifically allowed for in terms of external costs.

3.12.13 Notwithstanding the comments above, we have identified the following external costs as shown within area wide studies:

 Bradford City Council CIL Viability Evidence – undertaken by DTZ, dated June 2015. Externals / infrastructure 15% of basic build cost.

 Wakefield Metropolitan District Council CIL Viability Study – undertaken by DTZ, dated Feb 2014. Externals / infrastructure 15% of basic build cost.

 Sheffield City Council CIL Viability Study – undertaken by BNP Paribas, dated Feb 2014. Externals / infrastructure 15% of basic build cost.

 Leicester, Leicestershire & Rutland CIL Viability Study – undertaken by HDH Planning, dated January 2013. Externals / infrastructure 10% of basic build cost for the smallest sites, increasing to 20% for the larger greenfield schemes.

 North York Moors National Park Authority CIL Economic Viability Assessment – undertaken by Peter Brett Associates, dated November 2013. Externals / infrastructure 10% of basic build cost.

 North East Lincolnshire Local Plan and CIL Viability Assessment – undertaken by GVA, dated September 2013. Externals / infrastructure 20% of basic build cost.

 Rotherham Metropolitan Borough Council Community Infrastructure Levy Study – undertaken by Peter Brett Associates, dated July 2013. Externals / infrastructure 15% of basic build cost.

 Harrogate CIL Economic Viability Assessment, dated March 2013. Externals / infrastructure 10% of basic build cost.

 Stafford Borough Council Report on Viability and Deliverability, dated July 2013. Externals / infrastructure 10% of basic build cost.

 Selby District Council Community Infrastructure Levy Study – undertaken by Peter Brett Associates, dated Sept 2013. Externals / infrastructure 10% of basic build cost.

3.12.14 Having assessed all of the available evidence, we have taken the view that a percentage allowance based on the basic build cost is a reasonable approach for the purposes of a Whole Plan and CIL Viability Assessment. However, we have not identified any firm evidence to support the view that the larger the scheme, the higher this allowance should be (and the evidence we have from individual viability appraisals received does not show any fixed pattern). We have also considered the average figure of 18.36% identified from a sample of viability appraisals received by applicants (but acknowledging that following a negotiation process some of data sample will have come down, reducing the overall average), and also the figures adopted in various area wide studies, which across 10 studies showed an average of 14%. Taking all into consideration we have taken the view that a single figure of 17.5% of the basic build cost is considered fair and reasonable.

3.13 Contingency

3.13.1 In addition to basic build costs and external / infrastructure works described above, it is common practice to include a contingency allowance in the event that any unforeseen costs arise once the development proceeds. We consider this to be fair and reasonable for the purposes of a viability appraisal.

3.13.2 In terms of what is a reasonable level we have again looked at the same evidence as identified above for the external / infrastructure works. Our experience is that, as a percentage of basic build cost and externals / infrastructure, this tends to range from circa 2% to 5%, depending on the nature of the site.

3.13.3 We have again looked at viability appraisals received from applicants, both from those received by Durham County Council and DVS.

3.13.4 Of the Durham County Council appraisals received, we identified 12 sites since 2011 (ranging from 8 to 425 dwellings). Please note, the sample is smaller than for the external costs as some of the contingency allowances were unclear (and ‘built’ into the general build cost). As these cases contain sensitive commercial information we have not provided the full address details or the parties involved. The contingency allowance ranges from 0% to 5%. The average across the sample equates to 3.51%, the median equates to 3.78%.

3.13.5 For the DVS appraisals received, we identified 31 viability appraisals received during the last 2 years for mixed housing sites, covering a wide range of sites (from 5 to 900 dwellings). Please note, we have been able to identify a larger sample than established for the external / infrastructure works because in the case of the externals / infrastructure costs some schemes show an ‘all in’ build cost (therefore we were unable to extrapolate what was regarded as basic build costs and externals / infrastructure works). For the DVS sample, contingency costs proved easier to identify in the sample, hence the larger number of appraisals assessed.

3.13.6 Please note as these cases contain sensitive commercial information we have not provided the full address details or the parties involved. The contingency costs identified range from 0% to 7.15%. The average across the sample equates to 3.2%.

3.13.7 In addition, we have also considered the DPP2 evidence referenced above. For 81 projects in 2015, the mean contingency equated to 2.7%.

3.13.8 As per external costs, we have also reviewed a number of area wide viability studies from the wider region. Please note a number of the area wide studies date back to 2013. This reflects the studies that were available in the public domain at the time of writing this report. This ‘lag’ is likely to be because of the time it takes for a CIL viability study to be undertaken and a CIL charge being implemented. However, some of the key principles are still considered to be relevant, despite dating back to 2013.

3.13.9 Furthermore, please note we have not referenced all of the studies identified when considering contingency. This is because in some of the studies we were unable to identify what had been allowed for in the contingency.

3.13.10 Notwithstanding the comments above, we have identified the following contingency as shown within area wide studies:

 Bradford City Council CIL Viability Evidence – undertaken by DTZ, dated June 2015. Contingency 5% of basic build cost.

 Wakefield Metropolitan District Council CIL Viability Study – undertaken by DTZ, dated Feb 2014. Contingency 5% of basic build cost.

 Sheffield City Council CIL Viability Study – undertaken by BNP Paribas, dated Feb 2014. Contingency 5% of basic build cost.

 Leicester, Leicestershire & Rutland CIL Viability Study – undertaken by HDH Planning, dated January 2013. Contingency 2.5% for the greenfield sites, increasing to 5% for the larger greenfield schemes.

 North York Moors National Park Authority CIL Economic Viability Assessment – undertaken by Peter Brett Associates, dated November 2013. Contingency 5% of basic build cost.

 North East Lincolnshire Local Plan and CIL Viability Assessment – undertaken by GVA, dated September 2013. Contingency 3% of basic build cost.

 Rotherham Metropolitan Borough Council Community Infrastructure Levy Study – undertaken by Peter Brett Associates, dated July 2013. Contingency 5% of basic build cost.

 Harrogate CIL Economic Viability Assessment – undertaken by Tym & Partners (Part of Peter Brett Associates), dated March 2013. Contingency 5% of basic build cost.

 Stafford Borough Council Report on Viability and Deliverability – undertaken by Levvel Ltd, dated July 2013. No contingency has been included.

 Selby District Council Community Infrastructure Levy Study – undertaken by Peter Brett Associates, dated Sept 2013. Contingency 5% of basic build costs.

3.13.11 7 of the 10 studies identified show a single contingency allowance of 5%. However, it should be noted that 4 out of these 7 studies adopt external / infrastructure costs at only 10%, and 2 out of the 7 only 15% (therefore below the 17.5% concluded above for the purposes of this study). This may explain why the contingency has been set at 5%, which in our experience is towards the top end of the range.

3.13.12 Having assessed all of the available evidence we have taken the view that a single figure of 3% of the basic build cost is considered fair and reasonable for the purposes of this area wide study.

3.14 Abnormal Development Costs

3.14.1 Abnormal costs relate to issues such as decontamination, adverse geo technical conditions, off-site highway works, demolition of existing buildings etc (i.e. works which would not be associated with a ‘standard’ scheme). Abnormal costs will vary significantly depending on the nature of the scheme, ranging from zero to potentially several million pounds.

3.14.2 Often abnormal costs are not revealed until a full scheme design is completed and the relevant due diligence undertaken. It is therefore impossible to provide a robust assessment of the likely abnormal costs that could be associated with the sites. For this reason, in undertaking district wide viability studies for some other Councils we have adopted a zero (nil) cost for abnormal works.

3.14.3 However, based on our experience we are of the view that it is appropriate to include a ‘spot allowance’ for abnormal costs (as it is felt that most sites within the area have in the past and are likely in the future to attract additional abnormal costs).

3.14.4 Our approach is to consider abnormal costs on a ‘rate per Ha’ basis.

3.14.5 We have subsequently reviewed a number of viability appraisals submitted to the DVS by applicants. We have limited the sample to greenfield sites (providing 550 units or less) and cleared brownfield sites (of 367 units or less), to ensure the comparables are broadly in line with the hypothetical development sites used in this study. Please note we were unable to identify the level of abnormal costs in the Durham County Council sample of viability appraisals received as a ‘rate per Ha’. This is because the figures provided were a percentage of the overall build cost.

3.14.6 For Greenfield sites, we have identified 16 viability appraisals, showing a range of schemes from 5 dwellings to 550. The average abnormal costs across the sample equates to £155,154 per gross Ha.

3.14.7 For cleared Brownfield sites, we have identified 12 viability appraisals, showing a range of schemes from 13 dwellings to 367. The average abnormal costs across the sample equates to £194,357 per gross Ha.

3.14.8 In our appraisals we have subsequently adopted a figure of £150,000 per gross Ha for the greenfield sites, and £200,000 per gross Ha for the brownfield sites. Whilst arbitrary this at least acknowledges that most sites tend to attract some form of abnormal costs.

3.15 Professional Fees

3.15.1 For professional fees we have again looked at the same types of evidence as identified above for the external / infrastructure works and contingency. For the larger housing sites, which are considered likely to attract regional / national house builders, our experience is that circa 6% of build costs is appropriate (expressed as a percentage of the basic build costs plus the external works). This reflects the fact there is little ‘original’ thought in the development (i.e. the developer is a national house builder who will look to use existing ‘house’ products in the scheme design). For smaller, more bespoke projects our experience suggests circa 8 – 10% is more appropriate.

3.15.2 We have again looked at viability appraisals received from applicants, both from those received by Durham County Council and DVS.

3.15.3 Of the Durham County Council appraisals received, we identified 17 sites since 2011 (ranging from 8 to 425 dwellings). As these cases contain sensitive commercial information we have not provided the full address details or the parties involved. The professional fees range from 2.30% to 12.80%. The average across the sample equates to 6.97%, the median equates to 5.80%.

3.15.4 As for the DVS sample, we have again looked at viability appraisals received from applicants, identifying the same 31 viability appraisals used in the contingency sample (see above). Please note as these cases contain sensitive commercial information we have not provided the full address details or the parties involved. The professional costs identified range from 2% to 9%. The average across the sample equates to 5.91%. However, it should be noted that of the sample only 5 showed professional fees in excess of 6%.

3.15.5 In addition, we have also considered the DPP2 evidence referenced above. For 81 projects in 2015, the mean professional fees equated to 5.10%.

3.15.6 As per external costs and contingency, we have also reviewed a number of area wide viability studies from the wider region. Please note a number of the area wide studies date back to 2013. This reflects the studies that were available in the public domain at the time of writing this report. This ‘lag’ is likely to be because of the time it takes for a CIL viability study to be undertaken and a CIL charge being implemented. However, some of the key principles are still considered to be relevant, despite dating back to 2013.

3.15.7 Furthermore, please note we have not referenced all of the studies identified when considering professional fees. This is because in some of the studies we were unable to identify what had been allowed for in the professional fees.

3.15.8 Notwithstanding the comments above, we have identified the following professional fees as shown within area wide studies:

 Bradford City Council CIL Viability Evidence – undertaken by DTZ, dated June 2015. Professional fee 6% of build cost.

 Wakefield Metropolitan District Council CIL Viability Study – undertaken by DTZ, dated Feb 2014. Professional fee 6% of build cost.

 Sheffield City Council CIL Viability Study – undertaken by BNP Paribas, dated Feb 2014. Professional fee 10% of build cost.

 Leicester, Leicestershire & Rutland CIL Viability Study – undertaken by HDH Planning, dated January 2013. Professional fee 10% of build cost.

 North York Moors National Park Authority CIL Economic Viability Assessment – undertaken by Peter Brett Associates, dated November 2013. Professional fee 10% of build cost.

 North East Lincolnshire Local Plan and CIL Assessment – undertaken by GVA, dated September 2013. Professional fee 8% of build cost.

 Harrogate CIL Economic Viability Assessment – undertaken by Tym & Partners (Part of Peter Brett Associates), dated March 2013. Professional fee 10% of build cost.

 Selby District Council CIL Study – undertaken by Peter Brett Associates, dated Sept 2013. Professional fee 10% of build cost.

3.15.9 4 out of the 8 studies therefore include professional fees of 10%. Again, though, a number of these studies showed what we considered to be extremely low external costs (at 10% of basic build costs, compared with our figure of 17.5%) and therefore it was unclear whether some of the costs that we would regard as external works were actually being factored within the ‘professional fees’ section of the appraisal.

3.15.10 On balance, and given our experience in the market place, we have concluded that for schemes that are most likely to attract a volume house builder we consider 6% of the basic build / external cost to be appropriate, due to the limited requirement for ‘original’ thought in the design process. For smaller schemes that would attract say local builders we would increase this figure to 8%, principally to reflect the added professional input required at the design stage.

3.16 Marketing

3.16.1 For marketing costs we have again looked at the same types of evidence as identified above.

3.16.2 Of the Durham County Council appraisals received, we identified 17 sites since 2011 (ranging from 8 to 425 dwellings). As these cases contain sensitive commercial information we have not provided the full address details or the parties involved. The marketing range from 0.50% to 9.34%. The average across the sample equates to 3.84%, the median equates to 4.00%.

3.16.3 We have again looked at viability appraisals received from applicants, identifying the same 31 viability appraisals used in the contingency sample (see above). Please note as these cases contain sensitive commercial information we have not provided the full address details or the parties involved. The marketing identified range from 0.75% to 5%. The average across the sample equates to 3.02% (all of which exclude legal fees). However, it should be noted that of the sample only 2 showed marketing costs in excess of 4%.

3.16.4 In addition, we have also considered the DPP2 evidence referenced above. For 81 projects in 2015, the mean marketing equated to 3.5%.

3.16.5 As per a number of the other appraisal inputs (as detailed above), we have also reviewed a number of area wide viability studies from the wider region. Please note a number of the area wide studies date back to 2013. This reflects the studies that were available in the public domain at the time of writing this report. This ‘lag’ is likely to be because of the time it takes for a CIL viability study to be undertaken and a CIL charge being implemented. However, some of the key principles are still considered to be relevant, despite dating back to 2013.

3.16.6 Furthermore, please note we have not referenced all of the studies identified when considering marketing costs. This is because in some of the studies we were unable to identify what had been allowed for in the marketing costs.

3.16.7 Notwithstanding the comments above, we have identified the following marketing costs as shown within area wide studies:

 Bradford City Council CIL Viability Evidence – undertaken by DTZ, dated June 2015. Marketing (including legal fees) 3.5% of sales.

 Wakefield Metropolitan District Council CIL Viability Study – undertaken by DTZ, dated Feb 2014. Marketing (including legal fees) 3.5% of sales.

 Leicester, Leicestershire & Rutland CIL Viability Study – undertaken by HDH Planning, dated January 2013. Marketing (including legal fees) 2.5% of sales.

 North York Moors National Park Authority CIL Economic Viability Assessment – undertaken by Peter Brett Associates, dated November 2013. Marketing (including legal fees) 3% of sales.

 North East Lincolnshire Local Plan and CIL Viability Assessment – undertaken by GVA, dated September 2013. Marketing (including legal fees) 3% of sales.

 Harrogate CIL Economic Viability Assessment – undertaken by Tym & Partners (Part of Peter Brett Associates), dated March 2013. Marketing (including legal fees) 3% of sales.

 Selby District Council Community Infrastructure Levy Study – undertaken by Peter Brett Associates, dated Sept 2013. Marketing (including legal fees) 3% of sales.

3.16.8 4 out of the 7 studies therefore include marketing fee of 3% of sales values (to include legal costs), the others show 2.5% and 3.5%.

3.16.9 On balance, and given our experience in the market place, we have concluded that 3% of sales value is appropriate, plus an additional allowance for legal costs (which we have set at £500 per dwelling, which is considered to be, if anything, on the generous side based on individual viability appraisals my office receives from applicants).

3.17 Developer’s Profit

3.17.1 When considering profit margins for the purposes of a Whole Plan and CIL Viability Assessment we have applied what is considered to be the ‘minimum’ return a developer would require to develop each site.

3.17.2 From our experience, we consider the two tiered approach advocated by the HCA to be appropriate. This involves applying a profit level to the Market Value homes (normally 15 – 20% of revenue) and a lower contractor’s margin (5 – 6% on cost) to the affordable dwellings. When the two are factored together this gives an overall ‘blended’ profit level.

3.17.3 As per our assessment of construction costs, we also consider individual viability appraisals forwarded to us by developers, which includes what they consider to be appropriate inputs (such as benchmark land values, house prices and likewise developer’s profit). We use these viability appraisals as a starting point when undertaking our own appraisals.

3.17.4 Of the Durham County Council appraisals received, we identified 15 sites since 2011 (ranging from 8 to 425 dwellings) where we could extrapolate the required profit margin. As these cases contain sensitive commercial information we have not provided the full address details or the parties involved. The required profit margin ranges from 15% to 20% (expressed as a percentage of revenue). The average across the sample equates to 19.17%, the median equates to 20%.

3.17.5 Often in the market place developers will indicate that 20% of GDV is a market ‘benchmark’ for the purposes of a viability assessment, a figure which is routinely required by developers. However, we are of the opinion that profit should be related to the specific circumstances of the individual site (albeit this is less relevant when considering an area wide study). Furthermore, we are of the view that 20% is not always a requirement of a developer. The following evidence has been taken from viability assessments undertaken by the applicant / their agent without any influence from DVS (please note due to the confidential nature of the appraisals we are unable to provide full details of the specific sites and if further details are needed we will need to seek prior approval from the relevant parties):

 Leeds, West Yorkshire – October 2013. Scheme of 112 dwellings. Appraisal provided by national surveying firm. ‘Blended’ developer’s profit stated as being 16.67% of gross development value (“GDV”).

 Holbeach, South Holland – Viability appraisal dated Dec 2013. Housing and flat scheme for 55 units. Two-tiered developer’s profit approach, stated as being 17.5% of GDV for the Market Value dwellings and 6% on cost for the affordable units.

 Repton, South Derbyshire – Viability appraisal dated March 2014. Scheme of 33 dwellings, regional developer. ‘Blended’ developer’s profit stated as being 15% of GDV, applied to the Market Value houses.

 Skipton, North Yorkshire – Viability appraisal dated July 2014. House scheme for 110 dwellings, national developer. 15% profit on GDV for market value houses, 5% on GDV for affordable units.

 North Derbyshire Village – Viability appraisal dated Jan 2015. House scheme for 550 dwellings, regional consultant. ‘Blended’ developer’s profit given as 15.61% on GDV.

 Boston. Lincolnshire – Viability appraisal dated April 2015. House scheme for 108 dwellings, national developer. ‘Blended’ developer’s profit given as 16.58% on GDV

3.17.6 In addition to the above, we have also been involved in a variety of site specific viability assessments where we have been instructed to negotiate viability matters on behalf of the local authority. This involves looking to negotiate and agree inputs into the viability appraisal, with a view to coming to a compromised position with regard to viability and the impact on affordable housing / planning gain. The following examples have therefore been taken from sites where we have looked to agree an appropriate developer’s profit with the applicant / the agent through a negotiation process:

 Suburban area, North of Leeds City Centre – Viability negotiations during Summer 2015. Scheme of 400 dwellings, regional developer. Through negotiations agreed a developer’s profit of 18% on GDV for the Market Value Houses and 6% on cost for the affordable units.

 Village to South of Leeds, West Yorkshire – Viability negotiations during Summer / Autumn 2014. Scheme of 181 dwellings, regional developer. Through negotiations agreed a developer’s profit of 18% on GDV for the Market Value Houses and 5% on cost for the affordable units.

 Edge of City Centre, York, North Yorkshire – Viability negotiations during Quarter 1 2014. Scheme of 195 dwellings, national developer. Through negotiations agreed a developer’s profit of 17.5% on GDV for the Market Value Houses and 6% on cost for the affordable units.

 Village in South Derbyshire – Viability negotiations during Quarter 3 2013. Scheme of 77 dwellings, regional developer. Through negotiations agreed a developer’s profit of 18% on GDV for the Market Value Houses and 6% on cost for the affordable units.

3.17.7 The above demonstrates that 20% of GDV is not always a requirement of a developer when looking to implement a scheme. This is supported by the DPP2 evidence, where for 81 projects in 2015, the mean developer’s profit equated to 19% on GDV for the open market dwellings and 8.1% on cost for the affordable dwellings.

3.17.8 Based on the evidence above there is clearly an element of ‘flex’ in profit levels depending on the nature of each particular scheme. The data suggests that a general range of 15 – 20% on GDV for market value houses is fair and reasonable at the current time, with the higher end of the range tending to be applied to larger schemes in lower value areas (and perhaps with higher associated abnormal / infrastructure costs). For affordable housing a profit margin of 5 – 8% of cost appears to be broadly reasonable.

3.17.9 For clarity, when undertaking individual viability assessments it is therefore necessary to assess the appropriate level of profit within the context of the above parameters. Each site should be take on its individual merits before a conclusion is reached on a suitable level of profit. We do not therefore consider a fixed figure to be appropriate when undertaking individual viability appraisals.

3.17.10 However, for the purposes of an area wide study and in relation to the larger schemes (say over 50 units) we consider it appropriate to apply a single average. In this case, consider a figure of 8% on cost for the affordable units, and 18.5% on revenue for the market value dwellings to be reasonable (and justifiable in the context of the evidence identified). For smaller schemes (i.e. sub 50 dwellings) a profit in the region of 15 – 17.5% on GDV (in relation to the market value units and 8% on cost for the affordable dwellings is considered reasonable.

3.18 Finance

3.18.1 It has been assumed throughout this study that VAT either does not arise or that its effects can be ignored.

3.18.2 There are various approaches that can be taken to assessing finances, including more complicated methods such as assessing the “Internal Rate of Return” or an assessment of the “Return on Capital Employed”. However, having discussed this at the stakeholder workshops we considered the general consensus to be that area wide studies should adopt a relatively simple approach to assessing finances, where interest rates (and credit rates) at perceived market levels are inputted into an industry approved toolkit (in this case the HCA DAT).

3.18.3 Our experience of other areas in the North of England (including specifically the North East of England) suggests that finance costs have dropped slightly in the last 12 – 18 months, and that a range of 5.5% – 6.5% is now more common place. The DPP2 evidence referenced above actually shows an average interest rates of 3.7%

3.18.4 In this regard, we consider a debit rate at circa 5.5% – 6% to be broadly reasonable in the current climate (albeit it is stressed this is likely to change if Bank of England interests rates increase significantly).

3.18.5 We would also advocate the use of a credit rate of 3% (which tends to be relevant to larger, multi phased developments completed over a number of years). Again, this is considered to be in line with schemes we are appraising across the region and also guidance provided by the Homes and Communities Agency (“HCA”).

3.19 Threshold Land Value

Introduction

3.19.1 Land value is a key component of a development appraisal, albeit it can often be the ‘outcome’ of the appraisal rather than being a fixed figure (hence why appraisals are often referred to as being ‘residual’, because once all the inputs are included the ‘residue’, if there is any, is used as the sum which a developer could pay for the site).

3.19.2 However, the ‘residue’ from the appraisal (as a land value) does not always meet the expectations of the landowner. If the developer is only able to pay a significantly reduced sum below the landowner’s expectations then the outcome is fairly straight forward; the land would not be sold for development. In undertaking a viability assessment a minimum land value is therefore identified (sometimes referred to as the “benchmark” or “threshold” land value - TLV).

3.19.3 This slightly changes the focus of a development appraisal when used for testing viability, because rather than the land value being freely subject to change there becomes a minimum figure below which a landowner would not release the land for development. If this minimum figure is reached, other inputs within the appraisal would need to be subject to change to ensure viability. As the majority of development costs (like build costs, professional fees, funding etc) are relatively fixed the only ‘flex’ could therefore be in the developer’s profit or the Council’s policy. Paragraph 173 of the National Planning Policy Framework (“NPPF”) indicates that the Council’s policy should be at a level which provides the developer and landowner with a competitive return, which is often taken to mean that the Council’s policies should be an input subject to change if the minimum land value has not been met but the Council’s full policies have been achieved.

3.19.4 In summary, a TLV can therefore be regarded as being effectively the average price that an average developer / house builder would be willing to pay for a site, being at a level which would incentivize an average landowner to release the site for development. A TLV does not therefore seek to reflect excessive demands from unreasonable parties, but instead looks to reflect a reasonable price for all parties concerned.

Methodology

3.19.5 The valuation process to identify this ‘reasonable’ price involves the surveyor judging where the value of the site would be if the respective costs of applying all the Council’s existing and emerging planning policies and undertaking abnormal works (if applicable) were fully reflected. This is then viewed alongside the price at which a reasonable, hypothetical, commercially-minded landowner would dispose of the land having regard to the site’s Current Use Value (CUV) or any Alternative Use Value (AUV), should one be available.

3.19.6 Settling on this ‘reasonable’ land value in an appraisal is not therefore straightforward and the guidance is contradictory and can be interpreted in different ways. Landowners naturally want as a high a price as they can achieve and some of them are not prepared to recognise how the impact of the cost of planning gain and abnormals drives down net land values materially.

3.19.7 As indicated above, to complicate matters the approach to assessing an appropriate TLV for greenfield sites is also slightly different to brownfield land, because the ‘premium uplift’ on a greenfield site should be significantly higher than that of brownfield land.

3.19.8 Furthermore, abnormal costs should also be a key consideration when assessing an appropriate TLV for a particular site. If there are 2 identical sites next door to one another, but one has significant abnormal works and the other doesn’t, then the TLV for the site affected by the abnormal works should have a lower TLV than the unaffected site.

3.19.9 When assessing TLVs we look to assess a variety of evidence sources, including:

 TLVs submitted by developers / house builders in their own viability appraisals.  TLVs as agreed with developers / house builders as part of negotiations over individual viability appraisals.  TLVs determined as part of the planning appeal decisions.  TLVs assessed for the purposes of area wide studies.

3.19.10 The above therefore provides direct evidence sources on actual TLVs, and therefore it is easier to make a direct comparison. The Harman Guidance suggests this should be the ‘first step’ when looking to identify appropriate TLVs.

3.19.11 The ‘second step’ is to then consider market transactions / land sales. However, assessing actual land sales for the purposes of identifying a TLV is not straight forward, as the price someone is willing to pay for a piece of development land (and indeed accept for a piece of development land) is subject to many factors, which includes:

- Whether any third parties benefit from a ransom position preventing access to the site. - Whether there are any title constraints. - The abnormal costs associated with developing the site (i.e. any untypical cost, such as deep pile foundations to mitigate ground concerns, flooding mitigation works etc). - The planning policies that relate to a specific type of scheme. - Whether a purchaser benefits from synergistic value (formerly known as marriage value) with any neighbouring land they already own or will own in the future. - Whether a vendor is under financial pressure to sell. - Whether a house-builder is keen to have a presence in a particular location etc etc.

3.19.12 There are therefore a number of factors which impact the price someone is willing to pay for development land, because ultimately each development site is unique. For example, you could have 2 sites next to each other sold at the same time, each being 5 Ha and the same shape. However, one may have significant flooding issues and a poor access route, whereas the other may have no concerns. The price paid for the land affected by ‘abnormal’ development costs (i.e. in this case flooding and a poor access route) would therefore most likely be significantly less than the unaffected site. The reasons for the difference in value, though, would not be identifiable by simply looking at the price paid for the land on a ‘per Ha’ basis.

3.19.13 This means it is extremely difficult to compare two land transactions because in reality only some of the factors outlined above (which is not an exhaustive list) will be known to the analysing surveyor.

3.19.14 In this respect, land transactions are useful in providing a ‘sense check’ but they should not be regarded a providing a definitive view on threshold land values, particularly on a ‘price per Ha’ basis, because in most cases the full details of the transaction (and the factors which impact value) will not be known. Land sales should be therefore considered after the other sources of evidence identified, and provide a ‘sense check’ only.

3.19.15 Please note, when assessing the evidence and considering appropriate TLVs we suggest there is a clear distinction between greenfield and brownfield sites, for the reasons outlined above.

Greenfield sites

3.19.16 A ‘greenfield’ site is considered to be a site which has not previously been developed before and essentially comprises grassland or agricultural land.

3.19.17 In terms of direct TLV evidence, we initially look to viability appraisals received from applicants. For the purposes of this exercise we have looked at TLVs for greenfield sites across the North East of England, Yorkshire and the East Midlands. Whilst a large geographical area this gives a good indication of how TLVs for greenfield sites remain relatively consistent across regions (please note for confidentiality reasons we are unable to provide the full details of each case):

1. Medium value area near to Leeds, West Yorkshire – greenfield site, net acreage 6.47 Ha, proposal for 181 dwellings. Abnormals circa £333,500 per net Ha. Average house price £1,888 per sq m. January 14 a regional developer submitted a viability appraisal, indicating a TLV equivalent to £680,000 per net Ha (£573,000 per gross Ha).

2. Low value area near The Wash, Lincolnshire – greenfield site, net acreage 1.53 Ha, proposal for 48 dwellings. Abnormals circa £328,000 per net Ha. Average house price £1,733 per sq m March 14 a regional house builder submitted a viability appraisal, indicating a TLV equivalent to £618,000 per net Ha (£449,000 per gross Ha).

3. Medium value area North Yorkshire, commutable to Leeds – greenfield site, net acreage 8.07 Ha, proposal for 179 dwellings. Abnormals circa £415,000 per net Ha. Average house price £1,977 per sq m April 14 a national house builder submitted a viability appraisal, indicating a TLV equivalent to £494,000 per net Ha (£369,500 per gross Ha).

4. Low value area South Yorkshire – greenfield site, net acreage 2.76 Ha, proposal for 97 dwellings. Abnormals circa £54,000 per net Ha. Average house price £1,391 per sq m. June 14 a national house builder submitted a viability appraisal, indicating a TLV equivalent to £217,500 per net Ha (£199,000 per gross Ha).

5. Medium value area North Yorkshire, commutable to Leeds – greenfield site, net acreage 3.57 Ha, proposal for 103 dwellings. Abnormals circa £408,000 per net Ha. Average house price £1,842 per sq m. June 14 a regional house builder submitted a viability appraisal, indicating a TLV equivalent to £284,000 per net Ha (£247,000 per gross Ha).

6. Medium value area West Yorkshire – greenfield site, net acreage 9.19 Ha, proposal for 166 dwellings. Abnormals circa £590,500 per net Ha. Average house price £1,923 per sq m Sept 14 a national house builder submitted a viability appraisal, indicating a TLV equivalent to £631,000 per net Ha (£474,500 per gross Ha).

7. Low value area West Yorkshire – greenfield site, net acreage 8.47 Ha, proposal for 283 dwellings. Abnormals circa £173,000 per net Ha. Average house price £1,587 per sq m. Nov 14 a national house builder submitted a viability appraisal, indicating a TLV equivalent to £294,000 per net Ha (£267,000 per gross Ha).

8. Low value area in Derbyshire – greenfield site, net acreage 2.15 Ha, proposal for 61 dwellings. Abnormals circa £155,500 per net Ha. Average house price £1,718 per sq m. Jan 15 a national house builder submitted a viability appraisal, indicating a TLV equivalent to £558,500 per net Ha (£553,000 per gross Ha).

9. Medium value in West Yorkshire - greenfield site, net acreage 16.08 Ha, proposal for 560 dwellings. Abnormals circa £148,000 per net Ha. Average house price £2,099 per sq m. April 15 a national firm of chartered surveyors submitted a viability appraisal, indicating a TLV equivalent to £618,000 per net Ha (£390,000 per gross Ha).

10. Medium value in West Yorkshire - greenfield site, net acreage 1.27 Ha, proposal for 42 dwellings. Abnormals circa £709,000 per net Ha. Average house price £2,152 per sq m. Mar 15 a national house builder submitted a viability appraisal, indicating a TLV equivalent to £363,000 per net Ha (£310,500 per gross Ha).

11. High value area in West Yorkshire – greenfield site, net acreage 3.50 Ha, proposal for 84 dwellings. Abnormals circa £217,500 per gross Ha. Average house price circa £1,958 per sq m (please note DVS argued this should have been in excess of £2,500 per sq m given the high value area). May 15 a national house builder submitted a viability appraisal, indicating a TLV equivalent to £445,000 per gross acre (net acreage unknown).

12. Low value area in Lincolnshire – greenfield site, net acreage 3.20 Ha, proposal for 108 dwellings. Abnormals circa £506,500 per net Ha. Average house price £1,629 per sq m. June 15 a regional house builder submitted a viability appraisal, indicating a TLV equivalent to £309,000 per net Ha (£277,000 per gross Ha).

13. Medium value area near to Leeds, West Yorkshire – greenfield site, gross acreage 6.47 Ha, proposal for 181 dwellings. Abnormals circa £333,500 per net Ha. Average house price £1,888 per sq m. January 14 a regional developer submitted a viability appraisal, indicating a TLV equivalent to £680,000 per net Ha (£573,000 per gross Ha). Following various discussions / negotiations a TLV of circa £536,000 per net Ha (£452,000 per gross Ha) was agreed by both DVS and the applicant for the purposes of the viability modelling.

14. Low value area in Lincolnshire – greenfield site, net acreage 11.23 Ha, proposal for 500 dwellings. Abnormals circa £435,000 per net Ha. Average house price £1,649 per sq m. In June 2014, following various discussions / negotiations a TLV of circa £370,500 per net Ha (£278,000 per gross Ha) was agreed by both DVS and the applicant (a regional developer) for the purposes of the viability modelling.

15. High value area in Derbyshire – greenfield site, net acreage 2.79 Ha, proposal for 62 dwellings. Abnormals circa £289,000 per net Ha. Average house price £2,316 per sq m. In Aug 2014, following various discussions / negotiations a TLV of circa £341,000 per net Ha (£219,000 per gross Ha) was agreed by both DVS and the applicant (a regional developer) for the purposes of the viability modelling.

16. Low value area in South Yorkshire – greenfield site, net acreage 1.84 Ha, proposal for 58 dwellings. Abnormals circa £138,000 per net Ha. Average house price £1,513 per sq m. In Jan 2015, following various discussions / negotiations a TLV of circa £247,000 per net Ha (£210,500 per gross Ha) was agreed by both DVS and the applicant (a national house builder) for the purposes of the viability modelling.

17. Medium value area on edge of suburban settlement near Nottingham – greenfield site, net acreage 4.34 Ha, proposal for 116 dwellings. Abnormals circa £220,000 per net Ha. Average house price £1,929 per sq m. Planning Appeal Hearing May 2015. Ahead of the hearing both DVS and the applicant (the landowner) agreed a TLV equivalent to £264,000 per net Ha (£230,000 per gross Ha).

18. High value area, large strategic site in North Yorkshire – greenfield site, gross area circa 50.99 Ha. Proposal for 900 dwellings. Abnormals and infrastructure circa £618,000 per gross Ha. Average house price £2,315 per sq m. Viability negotiations currently ongoing. Applicant proposed TLV equivalent to £519,000 per gross Ha. DVS arguing that a figure of £420,000 per gross Ha (taking into account the high abnormal and infrastructure costs) is more appropriate. Negotiations are ongoing but the half-way point between the 2 is considered to be a reasonable assumption, being £469,500 per gross Ha.

3.19.18 Based on the above sample of 18 identified TLVs the average equates to circa £353,555 per gross Ha, ranging from £199,000 per gross Ha to £573,000 per gross Ha.

3.19.19 More specifically, in the areas considered to be ‘low value’ (which we have defined as being areas where average values are sub £1,750 per sq m), the average across the sample of TLVs equates to £319,071 per gross Ha. For the ‘medium value’ sites (average dwelling values between £1,750 and £2,000 per sq m) the average increases to £391,000 per gross Ha. The ‘high value’ site sample (average house prices in excess of £2,000 per sq m) is small and therefore is considered to be less reliable (showing an average of circa £373,500 per gross hectare).

3.19.20 Although not a definitive source of information, this at least gives a general indication of the levels of TLVs being applied by developers / house builders to greenfield sites across the wider regions in viability appraisals (albeit with the acknowledgement that these figures are naturally on the high side). It therefore stands to reason that TLVs within an area such as County Durham (not considered to be vastly different in terms of the types of houses being provided and the values achieved to Yorkshire and the East Midlands) should certainly not exceed the upper end of this range.

3.19.21 In addition to the above we have also considered TLVs identified by private practice chartered surveyors in CIL / general area wide studies undertaken on behalf of local authorities. Again, we have considered these from a broader region, to include Yorkshire and the East Midlands, as follows:

 Durham County Council Affordable Housing & CIL Viability Study – undertaken by HDH Planning in October 2013. For greenfield sites, the report assumes an average TLV equivalent to £300,000 per gross Ha.

 Leicester, Leicestershire & Rutland CIL Viability Study – undertaken by HDH Planning, dated January 2013. For greenfield sites, the report assumes an average TLV equivalent to £279,000 per gross Ha.

 North York Moors National Park Authority CIL Economic Viability Assessment – undertaken by Peter Brett Associates, dated November 2013. The report doesn’t appear to distinguish between greenfield and brownfield sites. For moderate value areas a TLV equivalent to £750,000 per net developable Ha (so likely to be £615,000 to £680,000 on a gross Ha basis). For high value areas this increases to £900,000 per net Ha (so again on a gross basis more likely to be £740,000 - £800,000 per gross Ha).

 The Leeds Community Infrastructure Levy Economic Viability Study – undertaken by GVA in January 2013. For greenfield sites, the report assumes a TLV of £247,000 per gross Ha.

 North East Lincolnshire Local Plan and CIL Viability Assessment – undertaken by GVA, dated September 2013. For greenfield sites the assessment adopts the approach of identifying an average agricultural land value, which is assessed as being £17,450 per Ha. A premium above this CUV of 10 to 20 times this amount is then referenced (giving a TLV range of £174,500 per gross Ha to £349,000 per gross Ha). The middle point of this range is then adopted as essentially being the average TLV for a greenfield site - £261,750 per gross Ha.

 Selby CIL Addendum Report – undertaken by Peter Brett Associates in April 2014. The report doesn’t appear to distinguish between greenfield and brownfield sites. For low value areas a TLV equivalent to £450,000 per net developable Ha (so likely to be sub £370,000 on a gross Ha basis). For medium value areas this increases to £650,000 per net Ha (so again on a gross basis more likely to be £494,000 - £555,000 per gross Ha). For high value areas this increases to £900,000 per net Ha (so more like £740,000 - £800,000 on a gross basis per Ha).

 Carlisle City Council Local Viability Study – undertaken by HDH Planning in July 2014. For greenfield sites assumed a TLV of £330,000 per gross Ha.

 Leicester City Council CIL Viability Study Update – undertaken by HDH Planning in December 2014. For greenfield sites assumed a TLV range of £280,000 per gross Ha to £310,000 per gross Ha.

3.19.22 Of the 8 studies referenced, 6 suggest a greenfield TLV range of between £247,000 and £330,000 per gross Ha, with an average of circa £284,000 per gross Ha. These 6 studies were undertaken by 2 different market practitioners, 1 being GVA (a national firm of chartered surveyors), the other being HDH Planning and Development. GVA undertook 2 of the studies in Leeds and North East Lincolnshire, HDH Planning undertook the remaining 4 in Durham, Leicestershire (inc Rutland) and Carlisle. Despite these studies being undertaken by 2 different firms from different market sectors, and covering a large geographical area, both are broadly in agreement as a suitable average TLV for a greenfield site, being somewhere in the order of £247,000 to £330,000 per gross Ha.

3.19.23 However, the conclusions reached in the North York Moors and Selby studies (undertaken by Peter Brett Associates) are significantly different. Both provide a range of figures (and it should be noted these are based on net developable areas, so are naturally higher rates per acre than the gross figures). Equally, there appears to be no distinction between greenfield and brownfield sites, therefore there is a risk the figures are ‘skewed’ when being compared to the conclusions of the other studies (as we have only presented the conclusions on the greenfield sites for the other studies). Notwithstanding this, for medium value areas, with our assumed adjustments of net to gross, the suggestion seems to be that TLVs in the region of £495,000 - £680,000 per gross Ha are appropriate. For high value areas this range increases to broadly £740,000 - £800,000 per gross Ha.

3.19.24 The differences in conclusions between GVA and HDH Planning when compared with Peter Brett Associates highlights the difficulties in assessing TLVs. However, having considered the other evidence we have concluded that the average figures presented by GVA and HDH Planning appear to be more in line with general average TLVs identified above than the conclusions of Peter Bretts.

3.19.25 In conclusion, we would stress that each site should still be taken on its merits when looking to identify a suitable TLV, as this will fluctuate on a site by site basis depending on the abnormal costs of development, impact of Council policies etc. However there are some broadly accepted ‘norms’ or range of norms.

3.19.26 It should also be noted that quantum is likely to play a role on larger schemes (i.e. to reflect the fact a developer would effectively be buying in ‘bulk’, the TLV for large sites (in particular strategic sites) should be discounted on a price per acre basis). Furthermore, for the larger sites the developer / house builder is likely to draw down the land as and when needed, which would have a positive impact on the finance costs.

3.19.27 Having taken into account all of the above we are of the view that it is appropriate to adopt a range of TLVs for the purposes of this report. In this case, we have looked to apply a different range depending on whether the site is located within what is perceived to be a low, medium or high value area.

3.19.28 As indicated above, in our analysis we assumed a low value area supported values of sub £1,750 per sq m, a medium value high was considered to support values between £1,750 to £2,000 per sq m, and a high value area showed values in excess of £2,000 per sq m. Based on these definitions, and in light of the evidence identified the following TLVs for greenfield sites across County Durham appear reasonable:

Area Definition (£ per sq m) TLV range (£ per gross Ha)

Low value area Sub £1,750 Sub £250,000 Medium value area £1,750 - £2,000 £250,000 - £400,000 High value area Over £2,000 Over £400,000

3.19.29 However, please note for significantly larger strategic sites, as indicated above, we would expect a level of discount from the above figures to reflect quantum.

3.19.30 As a ‘sense check’ we have subsequently reviewed market transactions to determine whether these suggested figures are appropriate, albeit acknowledging that market transactions have their limitations when being assessed in the context of TLVs.

3.19.31 We have identified the following greenfield transactions which have taken place after Jan 2012:

Table 3 – Greenfield transactional evidence

DATE ADDRESS PRICE GROSS £ PER HA (HA)

Mar-15 WHITE GATES, PLAWSWORTH £50,000 0.42 £119,048 Nov-13 WELLSPRINGS FARM, WITTON GILBERT £1,000,000 7.00 £142,857 Jan-14 BILDERSHAW, WEST AUCKLAND £80,000 0.40 £200,000 Feb-14 SOUTHORPE FARM, THORPE £75,000 0.30 £250,000 Nov-14 LITTLE COOP HOUSE FARM, HAWTHORN £200,000 0.66 £303,030 Dec-14 LADYSMITH TERRACE, USHAW MOOR £2,000,000 5.58 £358,423 Dec-14 BROWNEY LANE, BROWNEY £4,200,000 11.2 £375,000 Oct-13 WINDSOR PLACE, SHOTTON COLLIERY £849,477 2.01 £422,625 Jul-15 TRAVELLERS GREEN, NEW LANE, £1,225,000 2.16 £567,130 NEWTON AYCLIFFE Jan-13 LANGLEY HALL FARM, LANGLEY MOOR £1,100,000 1.90 £578,947 Sep-14 66-80, WILLOWTREE AVENUE, DURHAM £1,584,000 1.50 £1,056,000 2014 WILLOWTREE AVENUE, GILESGATE £2,400,000 1.59 £1,512,857

3.19.32 Of the 12 transactions identified, there is a price range of £119,048 to £1,512,857 per gross Ha, with an average of £497,537 per gross Ha. However, the 2 highest values achieved are significantly in excess of all the other values achieved and are located within close proximity to the City of Durham, which tends to attract high premiums on land sales. We therefore believe that the inclusion of these 2 sales unfairly ‘skews’ the average. If these are removed, the range of prices achieved changes to £119,048 to £578,947 per gross Ha (with an average of £340,159 per gross Ha).

3.19.33 Whilst we would again highlight the difficulties associated with analysing land sales, as a broad ‘sense check’ the evidence identified does broadly fall within the TLV range shown above.

Brownfield

3.19.34 ‘Brownfield’ refers to sites that either currently have existing buildings, or previously had buildings on the site (and have now been cleared). In other words, a brownfield site is classed as land that is either currently developed or has been developed in the past.

3.19.35 We have identified the following TLVs for brownfield sites, identified from viability appraisals received from applicants. For the purposes of this exercise we have looked at TLVs for brownfield sites again across the North East of England, Yorkshire and the East Midlands. Whilst a large geographical area this gives a good indication of how TLVs for brownfield sites are assessed in other regions. Please note we have limited the data to schemes providing 50 or more residential units:

1. Low value area Lincolnshire – former garage, gross acreage 1.14 Ha, proposal for 55 dwellings. Abnormals circa £176,500 per net Ha. Average house price £1,660 per sq m. December 13 a regional developer submitted a viability appraisal, indicating a TLV equivalent to £850,000 per gross Ha).

2. Low value area South Yorkshire – former industrial facility, cleared. Gross acreage 1.64 Ha, proposal for 60 dwellings. Abnormals circa £714,000 per net Ha. Average house price £1,560 per sq m. June 14 a regional house builder submitted a viability appraisal, indicating a TLV equivalent to £274,000 per gross acre).

3. Medium value area West Yorkshire – existing industrial buildings. Gross acreage 1.45 Ha, proposal for 65 dwellings. Abnormals circa £537,500 per net Ha. Average house price £1,950 per sq m. Jan 15 a local landowner submitted a viability appraisal, indicating a TLV equivalent to £654,000 per gross Ha).

4. Medium value area West Yorkshire – cleared former industrial works. Gross acreage 1.93 Ha, proposal for 68 dwellings. Abnormals circa £609,000 per net Ha. Average house price £1,750 per sq m. Jan 15 a regional firm of chartered surveyors submitted a viability appraisal, indicating a TLV equivalent to £839,000 per gross Ha).

5. Low value area South Yorkshire – former colliery. Gross site area 15.78 Ha, 325 dwellings. Abnormals circa £246,500 per net Ha. Average house price £1,650 per sq m. Jul 14 a regional landowner submitted a viability appraisal, indicating a TLV equivalent to £145,500 per gross Ha).

6. High value area West Yorkshire – former quarry. Gross acreage 55 acres, proposal for 363 dwellings. Abnormals circa £1,255,000 per net Ha. Average house price £2,350 per sq m. Jan 12 a national firm of chartered surveyors submitted a viability appraisal, indicating a TLV equivalent to £653,500 per gross Ha).

7. Medium value area Derbyshire – former airfield. Gross acreage 39.26 Ha, proposal for 367 dwellings. Abnormals circa £259,500 per net Ha. Average house price £2,100 per sq m. May 14 a regional developer submitted a viability appraisal, indicating a TLV equivalent to £171,000 per gross Ha).

8. Low value area Derbyshire – existing industrial complex. Gross acreage 18.01 Ha, proposal for 600 dwellings. Abnormals circa £163,000 per net Ha. Average house price £1,660 per sq m. Mar 15 a national firm of chartered surveyors submitted a viability appraisal, indicating a TLV equivalent to £511,000 per gross Ha).

3.19.36 Of the sample of 8 brownfield TLVs identified the average equates to £512,000 per gross Ha. However, the range of TLVs is significantly broader than the greenfield data, ranging from £145,500 per gross Ha to £850,000 per gross Ha. One of the key drivers for this variance is due to the different CUV’s for each site. For example, where the current use of a site is as a quarry, which is considered to be redundant, clearly the underlying value of the land based on the existing planning consent will be significantly lower than say an existing employment site with occupied buildings in situ providing industrial accommodation.

3.19.37 Furthermore, the variance between CUVs for brownfield sites across different locations is also considered to be higher than for greenfield sites. Agricultural land values remain relatively consistent across regions, therefore the underlying CUV of a greenfield site will not be subject to more minimal change across low, medium and high value areas. In contrast, the CUV’s for brownfield sites are likely to vary more significantly. For example, a prime serviced industrial site (with good links to the motorway network) may have a CUV of £750,000 - £1,000,000 per Ha. A tertiary industrial site, with poor access to the motorways, may only have a CUV of sub £250,000 per Ha. Whilst perhaps an extreme example, it highlights the potential for variance in brownfield site TLVs.

3.19.38 Equally, our experience is that the AUV is likely to play a bigger role on brownfield rather than greenfield sites. For example, a brownfield site in an old industrial area may be viewed as having potential for long term regeneration, therefore other employment uses (offices, retail, leisure etc) may need to be factored into the TLV (which may have a significantly higher value). This, in some cases, this may significantly increase the TLV for a brownfield site.

3.19.39 For these reasons, the method of establishing a CUV and then adding some level of incentive uplift (which in our experience tends to be an uplift of between 10% and 30%), alongside an assessment of any credible AUV, can produce a wide range of TLVs for brownfield sites. It is therefore difficult to provide 1 or 2 overall averages across an area for brownfield sites, because the CUV / AUV of each site will need to be rigorously assessed before any meaningful conclusion is made.

3.19.40 In this regard, we have considered the conclusions drawn on suitable brownfield TLVs from other area wide studies (please note we have excluded the Peter Brett reports referenced above, on the basis that these reports do not give explicit figures for brownfield sites, they only provide a combined average for greenfield and brownfield sites. Furthermore, we have not included the GVA reports as it is unclear what TLVs have been applied to brownfield sites):

 Durham County Council Affordable Housing & CIL Viability Study – undertaken by HDH Planning in October 2013. For brownfield sites, the report assumes an average TLV range (based on the CUV + 20%) of £300,000 per gross Ha.

 Leicester, Leicestershire & Rutland CIL Viability Study – undertaken by HDH Planning, dated January 2013. For brownfield sites, the report assumes an average TLV (based on the CUV + 15%) of £345,000 per gross Ha (considered appropriate for industrial sites across a variety of locations).

 Carlisle City Council Local Viability Study – undertaken by HDH Planning in July 2014. For brownfield sites, the report assumes an average TLV (based on the CUV + 20%) of £420,000 per gross Ha (considered appropriate for industrial sites across a variety of locations).

 Leicester City Council CIL Viability Study Update – undertaken by HDH Planning in December 2014. For brownfield sites, the report assumes an average TLV range (based on the CUV + 20%) of £420,000 to £528,000 per gross Ha (depending on the nature of the current use and location).

3.19.41 Taking the mid-point of the ranges (where applicable) the above shows an average TLV for a brownfield site of £430,000 per gross Ha, circa 17% below the average shown from unchallenged viability assessments received from developers / house builders. However, as shown in some cases a range is deemed appropriate, recognizing the significant potential ‘swing’ in TLVs depending on locational factors and the existing uses.

3.19.42 It is therefore difficult to draw any firm conclusions from the data assessed, and we would again stress that it is less reliable to establish an average TLV for brownfield sites than greenfield sites due to the potential variance in CUVs and greater impact of locational factors.

3.19.43 As indicated above, in addition to the ‘direct’ TLV evidence identified above, we have also looked to analyse actual land transactions as part of our considerations. However, it is again stressed that comparing land transactions can be extremely difficult due to the unique nature of development sites, and therefore this evidence should be assessed carefully and only used as a general ‘sense check’. It also builds in the risk of taking account of land values based on current planning policies rather than the emerging policies of the Core Strategy, and it is stressed that future planning policies will have an impact on land values and land owner expectations.

3.19.44 As a ‘sense check’ we have subsequently reviewed market transactions, albeit acknowledging that transactions have their limitations when being assessed in the context of benchmark land values, as per the comments above.

3.19.45 We have identified the following brownfield transactions which have taken place after Jan 2012, for sites in excess of 0.5 Ha:

Table 4 – Brownfield transactional evidence

DATE ADDRESS PRICE GROSS £ PER HA (Ha) Apr-14 LARTINGTON LANE, BARNARD CASTLE £205,000 1.80 £113,889 May-14 BLEAK TERRACE, COCKFIELD £150,000 0.80 £187,500 May-15 UNITS 1/2, DOXFORD DRIVE, PETERLEE £109,500 0.54 £202,778 Feb-14 STANLEYBURN COURT, STANLEY £747,940 3.10 £241,271 Nov-14 MERRINGTON LANE IND EST, SPENNYMOOR £2,290,000 8.30 £275,904 Nov-14 HEAVENS VIEW, CHILTON, FERRYHILL £1,200,000 3.94 £304,569 Mar-12 COPELAW, AYCLIFFE, NEWTON AYCLIFFE £1,000,000 3.03 £330,033 Dec-14 STARTFORTH PARK, BARNARD CASTLE £1,000,000 2.61 £383,142 Jul-14 PONT BUNGALOWS, LEADGATE, CONSETT £750,000 1.88 £398,936 2012 GLENSIDE VIEW, PELTON FELL £925,000 2.23 £414,823 Dec-12 HOLLY HILL, THE MIDDLES, STANLEY £4,664,459 11.00 £424,042 2015 FORMER EDEC, YORK ROAD, PETERLEE £739,651 1.30 £571,149 Apr-12 RUSHYFORD, FERRYHILL £3,425,550 4.98 £687,861 Mar-14 BURNHOPE WAY, PETERLEE £1,560,000 1.90 £821,053

3.19.46 Of the 14 transactions a range of £113,889 to £821,053 per gross Ha is shown (with an average of £382,639 per gross Ha).

3.19.47 We consider a rate of circa £300,000 per gross Ha to be broadly reasonable for secondary / tertiary industrial land (which given the nature of County Durham as a region is likely to comprise the majority of brownfield sites). It may be prudent, though, to apply a range rather than a fixed figure, in acknowledgment that TLVs can fluctuate more significantly for brownfield sites. In this regard we consider £125,000 to £400,000 per gross Ha to be a fair and reasonable benchmark for secondary / tertiary industrial land.

3.19.48 For other brownfield site types, the underlying value of the site will fluctuate depending on the nature of the existing use (e.g. supermarket, retail, office, leisure, care home etc). For the purposes of this report we do not consider it appropriate to try and establish an average TLV across each use type.

3.20 Site Acquisition And Disposal Costs

3.20.1 The developments are assumed to proceed immediately and so no allowance should be made for holding costs, or indeed any income arising from ownership of the site prior to implementation. Acquisition Costs include stamp duty at the prevalent rate and an allowance of 0.5% for acquisition legal fees, plus an allowance for land registry fees. On larger, more complex sites an agent fee (circa 1%) can be deemed appropriate.

3.21 Section 106 Contributions / Emerging Policy Aspirations

3.21.1 Emerging policies should be considered as part of the testing. In accordance with the NPPF / NPPG the Council policies should not undermine viability.

3.21.2 The Council has an emerging policy aspiration which seeks to provide more housing options to older people. This could include a requirement for specific house types on certain schemes (e.g. bungalows, level access flats, sheltered housing / extra care dwellings). It may also seek requirements for enhanced standards, such as Category 2 of the Building Regulations 2010, which relates to “accessible and adaptable dwellings”. The cost / revenue implications of these aspirations may therefore need to be factored into any future study. In the case of sheltered / extra care dwellings the appraisals would need to be adjusted to reflect the nuances of the care market.

4. RESIDENTIAL SALES REVENUE (ALSO KNOWN AS GROSS DEVELOPMENT VALUE OR GDV)

4.1 Introduction

4.1.1 This section provides an assessment of local market conditions and the evidence base for the assumptions on house prices. As a starting point, and for the purposes of this report, we have considered average values across the 5 Delivery Areas (see Appendix 3).

4.2 Market Conditions

4.2.1 In terms of the general housing market, during the last 12 – 24 months there has been a general feeling of improvement in the residential market across the UK. This is supported by anecdotal evidence from both estate agents and house builders, who in some cases have indicated that demand levels have returned to pre ‘crash’ levels (i.e. pre 2008).

4.2.2 The average house price paid across County Durham as at March 2016 is currently circa £141,346, which is a 2.99% increase on the previous 12 months. This compares with the current average in England of £272,320, which is a 7.54% increase on the previous 12 months. This suggests that whilst there appears to be an upward pressure on values, the level of house price inflation in County Durham is relatively weak, which is causing house prices to ‘lag’ behind other parts of England. This is supported by medium term trends: the average house price paid in England has increased by 25.49% over the last 5 years, compared to an increase of only 11.67% across County Durham during the same period (all data from the preceding paragraph taken from Zoopla.co.uk).

4.2.3 Notwithstanding the differential in house prices between County Durham and England, there is still considered to be an under-supply of housing across the district (as is the case in many parts of the UK), and therefore strong demand (particularly from first time buyers) will continue to underpin house price growth, albeit at a weaker rate than other areas of the country. Furthermore, the Government’s Help to Buy scheme has been extended until 2020 (which is seen as major benefit to first time buyers).

4.2.4 In terms of the local characteristics of the County Durham market, we would highlight the following:

 Attractive landscape / desirable living environments in most parts of the County, particularly in the West.  Attractive settlements in most parts of the County, offering buildings with character and heritage.  Variety of low income ex-mining / ex-industrial communities.  Extreme differences in house values in short geographical distances.  Durham City existing as essentially its own market.  Settled and attractive residential areas, providing housing within commuting distance of the Tyne and Wear and Tees Valley conurbations.  Good north / south transport links to London and Tyneside.  A varied pattern of unemployment and deprivation.

4.2.5 In the context of the above, County Durham can be regarded as having two key overriding characteristics: (i) the local market is highly granular, where short geographical distances separate low and high value areas (ii) data generated as part of the Council’s Strategic Housing Market Assessment (“SHMA”) 2013 update suggested that circa 77.5% of households moving originated within County Durham, which suggests the County is, under the Department for Communities and Local Government (“DCLG”) definition, a “self-contained housing market area”.

4.3 County Durham Housing Market Review

4.3.1 Please see attached Appendix 3 for a more details review of the County Durham Housing Market, as at March 2016.

4.4 Summary

4.4.1 Based on our research we have arrived at the following average sales values, on a ‘per sq m’ basis.

Table 5 – Average House Prices

Detached Semi-detached Terraced (£ per sq m) (£ per sq m) (£ per sq m) Central Delivery Area City location (DH1) £2,300 £2,200 £2,200 Town £1,950 £1,850 £1,850 Village £1,850 £1,750 £1,750 Western Delivery Area DL12 – Teesdale Town £2,200 £2,100 £2,100 Village £2,100 £2,000 £2,000 DL13 – Wear Valley Town £1,900 £1,800 £1,800 Village £1,800 £1,700 £1,700 Northern Delivery Area Chester-le-Street £2,100 £2,000 £2,000 Town £1,875 £1,775 £1,775 Village £1,775 £1,675 £1,675 Southern Delivery Area Newton Aycliffe £1,775 £1,675 £1,675 Town £1,725 £1,625 £1,625 Village £1,625 £1,525 £1,525 Eastern Delivery Area Seaham £1,900 £1,800 £1,800 Town £1,775 £1,675 £1,675 Village £1,675 £1,575 £1,575

4.4.2 Based on the above we have concluded that the Central and part of the Western delivery areas (particularly around Barnard Castle) are considered to generally support the highest average values within the County, with the City of Durham showing particularly strong house prices. That said, we also noted strong house values in Chester-le-Street in the Northern Delivery Area, which we understand is underpinned by a strong commuter demand (for easy access to Newcastle). The Southern and Eastern areas show the lowest average values across the region.

4.4.3 In terms of which locations are therefore likely to show the strongest results of viability, it is stressed that it does not necessarily follow that the strongest value areas will always be more viable (owing to higher land values, abnormal costs etc). However, based on our experience, we are of the view that the strongest value areas do generally have a better chance of showing a viable scheme. In this regard, we believe that development schemes within the Central Delivery Area are likely to have the best chance of showing a viable project (and therefore would be able to support higher Council Policies such as affordable housing provisions and CIL charges). Other locations, such as Chester-le-Street and Barnard Castle, are also likely to have an improved chance of delivering viable schemes, again potentially allowing these locations to support higher Council Policies.

5. COMMUNITY INFRASTRUCTURE LEVY (“CIL”) – SITE TYPES

5.1 Introduction

5.1.1 The CIL is a levy charge based on a rate per sq m basis, applied to the increased amount of residential or commercial space in a particular development.

5.1.2 This section considers what types of development could be tested when assessing appropriate CIL charges to ensure that any future Whole Plan and CIL Viability Assessment identifies all possible uses and sets out the proposed assumptions to be applied for each (residential and non-residential).

5.1.3 For residential developments, the same approach and assumptions outlined above in Sections 2 to 3 will be appropriate when assessing appropriate CIL charges (i.e. an appraisal based approach, using the ‘residual’ methodology and applying the type of inputs referenced above).

5.1.4 As the approach to residential developments has already been considered in detail this section therefore focuses primarily on non-residential development projects.

5.2 Methodology

5.2.1 As detailed above in Section 2, for the purposes of identifying CIL rates we consider the ‘residual’ appraisal method to be the most appropriate.

5.2.2 This involves identifying the ‘end value’ of the completed scheme, netting off all the relevant development costs (including developer’s profit) to arrive at a ‘residual’ land value. This residual land value is then compared against a Threshold Land Value (“TLV”), i.e. the same approach adopted for the residential sites. If the residual land value is broadly in line or in excess of the TLV then the scheme is considered to be viable. If it falls significantly below the TLV then the scheme is deemed to be unviable.

5.2.3 However, and as indicated above in Section 2, the residual method can be presented in different ways, with the land value, profit or even Council policies set as the ‘residual’ or outcome of the appraisal. Based on our experience we would advocate fixing the land value and developer’s profit at pre-agreed levels, and therefore the ‘residual’ (if any) could be used to meet Council policies. We consider this to be the simplest way of approaching Whole Plan and CIL Viability Assessments.

5.2.4 However, in accordance with the NPPG it is generally accepted that a ‘viability buffer’ should be applied to the initial results of an area wide study, for 2 key reasons:

(i) The residual method does have a significant weakness. Because of the number of variables in an appraisal the ‘end’ result can fluctuate markedly with small variation in the inputs. In other words, the accuracy of the conclusion depends on the accuracy of a wide number of appraisal inputs, which in reality is extremely difficult to achieve.

(ii) Market conditions will fluctuate, which could lead to a wide variance in the viability of schemes. For example, at the time of testing market conditions could be considered to be relative strong therefore there is a danger of setting a CIL charge which only takes into account a buoyant market. If market conditions deteriorate and say developers require a higher profit margin to implement developments, the CIL charge adopted from a stronger market may no longer be viable.

5.2.5 The intention of the ‘buffer’ allowance is therefore an attempt to mitigate the inherent weakness of the residual method and the potential for market conditions to change. The buffer is designed to provide added protection within the plan policy process to ensure the CIL charges set by the Council do not serve to undermine viability (and therefore deliverability of sites).

5.2.6 To achieve this, the buffer approach ensures that not all of the ‘surplus’ generated from a viable scheme is taken by the Council as a CIL charge. Instead, only a proportion is adopted as CIL, leaving an additional surplus to cover either the natural variation that can be generated through a residual appraisal or changes in market conditions.

5.2.7 There is currently no ‘fixed’ buffer allowance, albeit it is understood that at recent CIL Examinations a discount ‘tone’ of 25% – 30% has generally been supported by Planning Inspectors. However, we note there are examples where a slightly wider buffer allowance was considered appropriate by the Planning Inspector. For example, the Planning Inspector’s published report on the examination of Wakefield Council’s draft CIL charging schedule (dated Nov 2015) concluded that a buffer in the region 35% to 50% of the ‘median’ maximum viable CIL charge was a “comfortable margin”. The suggestion was that the higher end of this scale was applicable to the more challenging market areas. It should be noted that Wakefield’s draft CIL charging schedule was approved by the Planning Inspector, subject to a relatively minor amendment linked to the proposed retail CIL charge.

5.2.8 This should be explored as part of a Whole Plan and CIL Viability Assessment, albeit we are of the view that, at the time of writing, buffer allowances of 25% and 50% are entirely reasonable.

5.3 Site Types

5.3.1 For testing non-residential developments it is necessary to establish the likely site ‘types’ that could be implemented across the County, taking into account the prevalent market conditions and the economical variances across the settlements. For example, in Durham City a student accommodation development may be considered likely, however it is unlikely this would be the case in a small, low value village settlement. Testing should therefore reflect the context of the specific area / settlement.

5.3.2 From our experience of undertaking other similar Whole Plan and CIL Viability Assessments, and given the nature of the County Durham market, we have identified the following site types which we consider to be appropriate for the purposes of testing CIL:

- Large office > 250 sq m in major settlement (i.e. town or city) - Large office > 250 sq m purpose built out of town offices - Small office < 250 sq m assume in a major settlement (i.e. town or city) - Large industrial > 500 sq m Prime location - Large industrial > 500 sq m Secondary location

- Small industrial < 500 sq m Prime location - Small industrial < 500 sq m Secondary location - Retail Warehouse gross internal area (“GIA”) 4,000 sq m. 150 car par spaces. Area 1.8 Ha. Tested greenfield and brownfield. 30% build coverage. - Supermarket GIA 1,500 sq m. Area 0.5Ha. - Supermarket GIA 4,000 sq m. 400 car par spaces. Area 1.8 Ha. Tested greenfield and brownfield. 30% build coverage. - Town centre shop 150 sq m. No parking. 0.017Ha - Student Accommodation. 175 bed, 20 sq m each. 35% circulation. 0.3Ha site.

5.3.3 The above is considered to be a reasonable reflection of the likely types of non-residential development which could take place across the County given the current market conditions. However, this is not intended to be an exhaustive list, and may be subject to variance / additions as part of a Whole Plan and CIL Viability Assessment (particularly if market conditions change).

5.4 Evidence

5.4.1 To identify the ‘end value’ of the completed schemes (otherwise known as the gross development value or GDV), for residential schemes a simple comparison approach was adopted by analysing sales of similar dwellings.

5.4.2 However, for non-residential (or commercial) property, where direct capital evidence is less abundant, a slightly different approach can be adopted. This involves identifying what is considered to be the annual Market Rent for the property. Once this is established, this is then capitalized using an investment yield (essentially a market multiplier) to arrive at a capital value. For example, for a 1,000 sq m industrial unit the Market Rent identified, based on comparable evidence, may equate to say £50 per sq m. This therefore gives a Market Rent (essentially a gross annual income) of £50,000 per annum. To arrive at a capital value an appropriate investment yield is identified, again established by considering comparable evidence. If that gross initial yield is say 8% (12.5 as a market multiplier) the ‘end value’ of the industrial unit is 12.5 multiplied by £50,000, which equals £625,000. This could then be inputted into our appraisal as being the ‘GDV’ of the site.

5.4.3 As part of HMRC / VOA we have detailed information on all commercial transactions (sales and lettings). This is used primarily in the assessment of business rates for non-residential property, but can be equally used in the assessment of Market Rents and investment yields for commercial property. For the purposes of this report we have subsequently drawn upon this information to identify rental and capital values for the various property types. We have also used public access websites, including Costar SUITE (formerly FOCUS) and EGi to ensure a robust evidence base.

5.4.4 Based on our research we have identified the following rental and yield ranges for the different property types, which vary due to locational factors:

Table 6 – Non-residential Market Rent and yield ranges

Development Type Rental range Gross (£ per sq m Initial Yield per annum) range (%) Large office > 250 sq m Major settlement £50 - £130 6.5% Large office > 250 sq m Out of town £50 - £130 8% Small office < 250 sq m £75 - £120 8% Large industrial > 500 sq m Prime £30 - £55 7.5% Large industrial > 500 sq m Secondary £20 - £45 8.5% Small industrial < 500 sq m Prime £45 - £55 7.5% Small industrial < 500 sq m Secondary £20 - £45 8.5% Retail Warehouse (4,000 sq m) £130 - £160 7.25% Supermarket (1,500 & 4,000 sq m) £180 5.5% Town centre shop £150 - £750 7 – 10% Student Accommodation £125 - £167.50 7% per person per week

5.4.5 We have then considered other key appraisal inputs, drawing upon other non- residential schemes we have appraised:

Table 7 – Non-residential key appraisal inputs

Appraisal input Comment

Threshold Land This will vary depending on the type of land in Value (“TLV”) question. For zoned industrial land a range identified of £200,000 to £400,000 per gross Ha is considered appropriate. For sites where other alternative uses need to be factored in (for example sites in Durham City that could suit leisure, office, retail etc) the TLVs should be in excess of this range. Basic build cost For the residential sites we were able to draw on a variety of information sources regarding build costs. For non-residential sites that information is more limited. We have subsequently placed a greater reliance on data from the BCIS, which suggests the following broad figures:

- Large industrial £555 per sq m - Small industrial £1,025 per sq m - Large office £1,485 per sq m - Small office £1,390 per sq m - Retail warehouse £660 per sq m - Small retail £845 per sq m - Supermarket (large and small) £1,510 per sq m - Student accommodation £1,490 per sq m

Externals This will vary depending on the nature of the scheme. For example, a small retail unit ‘in town’ will require significantly less space than say a supermarket, which would require a large amount of car parking. For the purposes of our assessment we consider a range of 5 – 20% to be appropriate, again dependent on the specific scheme.

Contingency From our experience, we consider 3% to be reasonable for the assessment of non-residential development sites, although 5% is often argued in the market place.

Professional fees Given that non-residential schemes tend to require more individual thought and design than standard housing products delivered by volume house building, we have adopted professional fees to 8%. Again, though, in market place often higher figures at circa 10 – 12% can be put forward.

Abnormals As per residential sites, it is acknowledged that abnormal costs are impossible to gauge on an ‘average’ basis because of variance from site to site. However, we consider it appropriate to allow ‘something’ in our appraisals as the majority of sites do tend to require some level of abnormal works. As per the residential sites, for greenfield sites we consider £100,000 per gross Ha and £150,000 per gross Ha for brownfield sites to be reasonable.

Marketing A spot allowance should be included to reflect the requirement for brochures, sales boards, newspaper and online marketing etc. A range of £5,000 - £50,000, depending on the size of the scheme, is considered to be reasonable.

Agency / legal fees Based on our experience, and other non-residential schemes we have appraised, for the letting of the accommodation we consider a 10% (of the annual Market Rent) agent letting fee together with a 5% legal fee to be reasonable. For the investment sale of the accommodation when fully let a 1% agency fee (of the sale price agreed) and a 0.5% legal fee can be regarded as being acceptable.

Finance In our view a current a debit interest rate of 6.5% is justifiable.

Developer’s Profit For non-residential accommodation the level of profit is often gauged against the cost of delivering the scheme (rather than the GDV, which tends to be the convention with residential property). Furthermore, the level of profit on cost will vary dependent on whether the scheme is speculative or not. In other words, if the property has been ‘pre-let’ (i.e. a tenant has signed up to a tenancy) before the construction works have commenced, then the risk associated with the scheme is considered to be significantly lower. From our experience, for a ‘pre-let’ development a profit margin of 10 – 15% of cost is generally acceptable. If, though, the scheme is entirely speculative (i.e. the tenants will be identified after the accommodation has been constructed) then the level of profit on cost, in our experience, increases to circa 15 – 20%. This reflects the potential for voids that would be incurred whilst a tenant is identified.

It could be assumed that a supermarket would be built on a ‘pre-let’ basis (as this is the normal approach for supermarkets when seeking new sites). For the supermarket type a profit of say 15% of cost could be adopted. For all other development types, it is more likely these would be developed on a speculative basis (i.e. without a tenant or purchaser having already been secured before the scheme is implemented). The profit margin could be increased to 17.5% on cost to reflect this increased risk.

5.5 Comments

5.5.1 Given the current market conditions, and based on our involvement with other CIL studies (including those undertaken by third parties), we are of the opinion that it is unlikely all development types would be able to viably provide a CIL charge.

5.5.2 In particular, we anticipate retail, office and industrial development is likely to be subject to viability pressure, unless the site is situated in a prime location.

5.5.3 We anticipate some residential areas are likely to be able to support CIL charges, albeit for the lowest value areas the chances of a CIL charge being shown to be viable will be reduced.

6. FINAL COMMENTS

6.1 As detailed above, and in accordance with the NPPF / NPPG, as well as professional guidance on viability studies, we are of the view that a residual appraisal approach is appropriate for the purposes of Whole Plan and CIL Viability Assessment. The approach is the same for residential and non- residential development sites.

6.2 The residual method involves identifying a sample of sites, considered to be a fair representation of the market characteristics of the County. Individual residual appraisals are then undertaken, using pre-set benchmarks / appraisal inputs to determine whether a site is viable or not. The sample could be based on ‘live’ development sites already identified by the Local Authority as having development potential. Alternatively, the sample could be based on hypothetical site ‘types’, designed to reflect the type of development sites likely to come forward under the period of the plan. There is no approved approach in this regard, and both approaches have pros and cons. This should be considered at the commencement of a study and the approach agreed with the Local Authority.

6.3 As indicated above, the approach should be the same for testing residential and non-residential development sites. The testing should therefore be consistent, and if hypothetical site ‘types’ is the preferred approach this should be applied to both residential and non-residential development sites. Please note, in Section 5 above we have provided some examples of potential hypothetical site types for non-residential development, based on prevalent market conditions. This is not intended to be a definitive list at this stage, but instead could act as a starting point when a Whole Plan and CIL Viability Assessment is undertaken.

6.4 The residual appraisal itself is simple in concept in that it shows the total revenue of a development, less the costs of delivering a scheme leaving a ‘residual’ sum. The method is flexible in that the appraisal can be adjusted to suit the requirements of the assessment, e.g. this ‘residual’ could be the land value, the developer’s profit or even a sum of money that could be used to meet Council Planning Policies. For example, if the ‘residual’ is to be the land value, then the developer’s profit and Council Planning Policies could be set at fixed levels in the appraisal. Alternatively, if the ‘residual’ is to be the developer’s profit, then it would the land value and the Council Planning Policies which would be set at fixed levels.

6.5 In this case, the purpose of the assessment is to determine whether a specific site in a particularly area is capable of viably supporting any S106, affordable housing or CIL contributions. We therefore consider it appropriate to ‘fix’ the developer’s profit and the land value in the appraisal, as well as all other costs. The ‘residual’ or ‘surplus’ generated by the scheme (if applicable) can therefore be taken to be a sum of money which could meet Council Planning Policies (i.e. S106, affordable housing, CIL). We would recommend this approach for the purposes of a Whole Plan and CIL Viability Assessment.

6.6 However, as part of this approach it would be appropriate to agree what is considered to be a viable scheme. The obvious starting point is if a scheme results in any surplus (i.e. above a zero return) when all the development costs (including the land value and developer’s profit, but excluding the Council Planning Policies) are fixed. However, the NPPF / NPPG seeks to ensure Local Authorities build in appropriate ‘buffer’ allowances in their Planning Policies to reduce the risk that these are set at levels which undermine viability. It could be argued that a ‘nil’ return does not appropriately build in a suitable buffer allowance and is instead at the ‘extremes’ of viability (which the NPPF / NPPG is clear Local Authorities should seek to avoid). However, this is debatable and we are of the view that a nil return already inherently builds in a buffer allowance. This, though, needs to be explored as part of the Whole Plan and CIL Viability Assessment process, and in particular the views of stakeholders should be gauged.

6.7 Furthermore, and in accordance with the NPPG, it is generally accepted that a ‘viability buffer’ should also be inherently built in to the adopted CIL rate. This is to help reduce the impact of the weaknesses of the residual method and also potential changes in market conditions during the life of the plan. This is achieved by discounting what is perceived to be a viable CIL charge by a fixed percentage. For example, if £50 per sq m is shown to be technically viable within an appraisal, a discount of say 30% is then applied to reduce the adopted charge to £35 per sq m. It should be noted that there is no fixed ‘buffer’ percentage that should be applied, and this will depend on the nature of the site, local market etc. However, a number of CIL Examinations suggest a discount tone in the region of 25% – 30%. This will need to be explored further as part of a Whole Plan and CIL Viability Assessment.

6.8 In terms of identifying what levels of CIL / S106 / affordable housing provisions can be supported from a scheme which produces a surplus, this should be determined on a ‘trial and error’ basis in a balanced way. In other words, if a scheme produced a £500,000 surplus (after a buffer allowance), it would not be appropriate to allocate £500,000 just to CIL and nil to affordable housing and S106 contributions. Instead, the level of surplus should be split as evenly as possible between the various planning policies. This will ensure that the adopted S106, affordable housing and CIL contributions are proportionate.

6.9 Finally, as part of the brief for this piece of work, the Council sought our views on which locations across the County are, generally speaking, likely to return the strongest results from viability testing (and therefore have the greatest opportunity of site deliver). Whilst full testing has not been undertaken (and therefore a robust view cannot be given at this stage) we are of the view that higher value areas are likely to have a better chance of delivering viable schemes (albeit this is not always the case as viability depends on a variety of factors including land value, abnormal costs etc). In this regard, we would expect the Central Delivery Area (as defined in Appendix 1) to, generally, show the strongest viability results. We would also expect strong results in other certain settlement areas, such as Chester-le-Street and Barnard Castle. However, we would reiterate that ultimately this will need to be determined through a robust appraisal process.

David Newham MRICS RICS Registered Valuer

District Valuer Services

May 2016

Appendix 1

Durham County Council map illustration of Delivery Areas

Appendix 2

Gardiner and Theobald Build Cost Evidence

Appendix 3

County Durham Housing Market Review

DTZ Wakefield Residential Benchmarking

WAKEFIELD

Residential Benchmarking

for DTZ

November 2014

DTZ Wakefield Residential Benchmarking

Please see the below cost benchmarking of similar large residential schemes, which includes indexing analysis to the most recent point (Quarter 4, 2014).

You will see that the median cost (including externals) comes out at £85.52 (indexed to 2014 Q4). This includes for the build costs and various further allowances including contingencies, fees, increased spec, site abnormals etc. An indicative breakdown of how we would expect the figure to be split down is included below:

Housebuilder Residential - Indicative Breakdown Split

4Q 14 2q12 average house £56.29 garage £3.82 house inc garage £60.11 contingency @ 2.5% £1.50 house inc contingency £61.62 plus extenals, prelims, fees etc £18.48 Total £80.10 abnormals £3.12 increased spec £2.30 Grand Total Build £85.52

Our approach is entirely consistent with the advice of the RICS, as it references the best and most current construction cost information there is with regard to standard construction costs, that is to say, evidence from actual, recent, similar schemes.

Whilst BCIS is a useful and very well respected reference source, indeed administered by the RICS itself, its primary purpose is as a marker for the various sectors and interests of the development industry for schemes at the very earliest stages of planning prior to professional cost advice being sought, and indeed as a rudimentary sense check for more advanced schemes.

Site specific abnormals aside (i.e. infrastructure off and on site through to particular special requirements regarding foundations), the actual process of house building is relatively straightforward, and the unit cost is generally a constant factor in the business modelling of housebuilders, large or small, and as such most volume housebuilders (national and regional) tend to keep these costs to themselves. As to how much they will factor in as a build cost when carrying out a development appraisal when considering a land purchase much depends on their view of the market at the time, and the importance or not they attach to acquiring the site. Hence build costs can vary widely within one housebuilder, with the quality of finishes typically being only a minor consideration (around +/- £2/sqft.). It is not u including estate roads and plot externals) build costs (excluding abnormals) to vary by around £20/sqft by development. As it is, the build costs of larger SUE schemes naturally fall within the lower end of the range.

Appendix 2 – County Durham Housing Market Review

HOUSING MARKET ANALYSIS - LOCAL MARKET CONDITIONS

1.0 Introduction

1.1 This section provides an assessment of local market conditions.

1.2 It is important to stress that a series of factors will influence values and that, although development schemes do have similarities, every site is unique. Consequently, whilst market conditions in general will broadly reflect national economic circumstances and local supply/demand factors, within an area there will be particular localities and site-specific factors that generate different values and costs.

1.3 The comments below relate to prevailing market conditions at March 2016. It should be stressed that values fluctuate and that assessments of viability will alter over relatively short periods of time.

2.0 Postcode Averages

2.1 As part of our research we have looked at average value trends across the different postcode locations of the County.

DH1

2.2 DH1 includes the City of Durham, which is the main administrative centre for the County and the key settlement in the postcode (other than a handful of villages to the South). The area is served by a key north to south train link, as well as north to south road links via the A1 (M). In the context of the County this is generally considered to be a high value area, particular for development opportunities with close connections to the City. The City of Durham is also a popular student location, therefore (unlike the many other locations in the County), there is strong demand for flat / apartment accommodation in and around the city. Demand for other commercial opportunities (such as office, retail, leisure etc) is also considered to be strong in this area, at least compared with other towns / villages across the County.

2.3 In terms of residential values, at the current time the average house value within DH1 for both new build and second hand sales equates to £212,015 (data taken from Zoopla.co.uk) and is therefore significantly above the County’s current average of £137,325. This is an increase of circa 0.57% during the last 12 months (which is slightly lower than the County’s average of 1.68% during the same period).

2.4 However, the general average can be a little misleading as it depends on that house types are available in a location (if there is a high proportion of terraced houses, for example, this can artificially decrease the average figure). In this respect, it is also useful to look at the average values of each particular house type (for both new build and secondary homes). In DH1 these are currently showing (data from Zoopla.co.uk) the following averages:

Flats - £165,805 (£2,551 per sq m) Detached - £334,484 (£2,379 per sq m) Semi-detached - £181,313 (£2,024 per sq m) Terrace - £213,486 (£2,110 per sq m)

DH2

2.5 DH2 includes essentially the west half of Chester-le-Street, which is the main town / settlement within the postcode area. Other settlements include the villages of Pelton, Ouston and Pelton Fell. This also includes the Drum Industrial Estate. Chester-le-Street is a major town within the context of the County, and being within 15 miles of Newcastle is considered to be able to cater for the commuter market (via good train and road links). That said, in terms of values DH2 has historically generated relatively modest house values, more in line with the wider County’s average rates. In terms of commercial uses, given the good rail and road network links this is considered to be one of the more attractive locations for industrial uses, at least compared with other areas of the County that do not benefit from the major transport services.

2.6 In terms of residential values, at the current time the average house value within DH2 for both new build and second hand sales equates to £145,216 (data taken from Zoopla.co.uk) and is therefore slightly above the County’s current average of £137,325. This is an increase of circa 1.40% during the last 12 months (which is broadly in line with the County’s average of 1.68% during the same period).

2.7 In DH2 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £235,496 (£1,905 per sq m) Semi-detached - £133,139 (£1,432 per sq m) Terrace - £96,625 (£1,227 per sq m)

DH3

2.8 DH3 includes essentially the east half of Chester-le-Street, which is the main town / settlement within the postcode area. Other settlements include the villages of Birtley and Great Lumley. The comments in DH2 regarding Chester-le-Street are therefore again applicable.

2.9 In terms of residential values, at the current time the average house value within DH3 for both new build and second hand sales equates to £161,856 (data taken from Zoopla.co.uk) and is therefore comfortably above the County’s current average of £137,325. This is an increase of circa 2.39% during the last 12 months (which is above the County’s average of 1.68% during the same period).

2.10 In DH3 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £267,954 (£1,883 per sq m) Semi-detached - £153,790 (£1,787 per sq m) Terrace - £109,864 (£1,259 per sq m)

DH6

2.11 DH6 covers a wide geographical area, comprising predominantly village settlements interspersed with agricultural land. The area includes villages south of the City of Durham (such a Croxdale, Bowburn and Coxhoe) which benefit from good road links via the A1 (M), as well as less accessible villages further north east and towards the east coast (including Sherburn Village, Haswell, Ludworth, Shotton Colliery etc). Given the geographical spread there is a wider range of values experienced across DH6 than some of the other postcode areas within the County.

2.12 Notwithstanding the wide geographical spread, in terms of residential values, at the current time the average house value within DH6 for both new build and second hand sales equates to £106,209 (data taken from Zoopla.co.uk) and is therefore below the County’s current average of £137,325. This data shows a loss in house prices during the last 12 months of -1.53%, therefore as a location has performed poorly when compared against the County wide figure of a 1.68% increase during the same period).

2.13 In DH6 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £188,207 (£1,582 per sq m) Semi-detached - £96,488 (£1,227 per sq m) Terrace - £79,886 (£1,001 per sq m)

DH7

2.14 DH7 covers a wide geographical area, comprising predominantly village settlements interspersed with agricultural land. The area includes villages on the western outskirts of the City of Durham (such a Bearpark, Broompark and Langley Moor) which benefit from good road links via the A1 (M) and A167, as well as less accessible villages further west (including Cornsay Colliery and Waterhouses). Given the geographical spread there is a wider range of values experienced across DH7 than some of the other postcode areas within the County (with the highest values likely to be experienced in the settlements closer to the City of Durham).

2.15 Notwithstanding the wide geographical spread, in terms of residential values, at the current time the average house value within DH7 for both new build and second hand sales equates to £132,867 (data taken from Zoopla.co.uk) and is therefore slightly below the County’s current average of £137,325. This data shows a modest increase in values during the last 12 months (around 1.15%), therefore as a location has performed slightly below the County wide figure of a 1.68% increase during the same period).

2.16 In DH7 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £219,840 (£1,808 per sq m) Semi-detached - £112,078 (£1,335 per sq m) Terrace - £95,293 (£1,206 per sq m)

DH8

2.17 DH8 covers a wide geographical area, which is effectively split into 2 parts. The first part is the far eastern corner of the postcode area (located around the A692 and A691) around the town of Consett (up to Shotley Briage and Ebchester), an established residential location which includes a number of industrial estates, which have grown around the good A road links. The rest of the postcode area (particularly the areas to the west of the A68) comprises largely agricultural land interspersed with small villages.

2.18 Notwithstanding the wide geographical spread, in terms of residential values, at the current time the average house value within DH8 for both new build and second hand sales equates to £131,562 (data taken from Zoopla.co.uk) and is therefore below the County’s current average of £137,325. This data shows an increase in values of 0.01% during the last 12 months, therefore as a location has performed poorly when compared against the County wide figure of a 1.68% increase during the same period).

2.19 In DH8 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £218,970 (£1,722 per sq m) Semi-detached - £115,500 (£1,356 per sq m) Terrace - £87,007 (£1,055 per sq m)

DH9

2.20 DH9 is located to the west of Chester-le-Street, to the north east of the City of Durham and circa 10 miles south east of Newcastle. This comprises mainly ex mining villages. The postcode area includes the Beamish Museum open air mining museum.

2.21 In terms of residential values, at the current time the average house value within DH9 for both new build and second hand sales equates to £96,033 (data taken from Zoopla.co.uk) and is therefore significantly below the County’s current average of £137,325. This data shows an increase in values during the last 12 months of around 1.02%), therefore slightly below the County wide figure of a 1.68% increase during the same period).

2.22 In DH9 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £184,529 (£1,507 per sq m) Semi-detached - £107,997 (£1,119 per sq m) Terrace - £70,899 (£915 per sq m)

DL4

2.23 DL4 covers a small geographical area, located in between Bishop Auckland and Newton Aycliffe. The main settlement in the area is the town of Shildon.

2.24 In terms of residential values, at the current time the average house value within DL4 for both new build and second hand sales equates to £84,724 (data taken from Zoopla.co.uk) and is therefore significantly below the County’s current average of £137,325. This data shows a strong increase in values during the last 12 months of around 6.28%, therefore significantly in excess of the County wide figure of a 1.68% increase during the same period).

2.25 In DL4 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £159,053 (£1,464 per sq m) Semi-detached - £91,851 (£1,087 per sq m) Terrace - £64,992 (£872 per sq m)

DL5

2.26 DL5 is located circa 10 - 15 miles south of the City of Durham. A large section of the postcode area is made up of the town of Newton Aycliffe, which itself includes a large residential settlement (with the usual town amenities) as well as a large industrial estate. The A1 (M) runs through the eastern edge of the postcode area, providing good road links to the north and south.

2.27 In terms of residential values, at the current time the average house value within DL5 for both new build and second hand sales equates to £138,603 (data taken from Zoopla.co.uk) and is therefore broadly in line with the County’s current average of £137,325. This data shows a strong increase in values during the last 12 months of around 3.28%, therefore significantly in excess of the County wide figure of a 1.68% increase during the same period).

2.28 In DL5 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £205,923 (£1,668 per sq m) Semi-detached - £115,359 (£1,345 per sq m) Terrace - £84,321 (£1,356 per sq m)

DL11

2.29 DL11 covers a large geographical area, located to the south of Barnard Castle and south West of Darlington. A large section of the postcode falls within the Yorkshire Dales National Park, and is therefore outside of the County Durham boundary. The area comprises various small hamlets / villages, interspersed with agricultural land.

2.30 In terms of residential values, at the current time the average house value within DL11 for both new build and second hand sales equates to £316,802 (data taken from Zoopla.co.uk) and is therefore is significantly above the County’s current average of £137,325. This data shows a strong increase in values during the last 12 months of around 4.69%, therefore significantly in excess of the County wide figure of a 1.68% increase during the same period).

2.31 In DL11 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £397,635 (£2,723 per sq m) Semi-detached - £269,291 (£2,487 per sq m) Terrace - £229,160 (£2,304 per sq m)

DL12

2.32 DL12 covers a wide geographical area, which includes the market town of Barnard Castle to the south east as well as various other villages situated in Teesdale. The postcode area also covers a large section of the Moor House Upper Teesdale Nature Reserve.

2.33 In terms of residential values, at the current time the average house value within DL12 for both new build and second hand sales equates to £204,974 (data taken from Zoopla.co.uk) and is therefore significantly above the County’s current average of £137,325. This data shows a strong increase in values during the last 12 months of around 4.00%), therefore significantly in excess of the County wide figure of a 1.68% increase during the same period).

2.34 In DL12 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £302,748 (£2,088 per sq m) Semi-detached - £178,542 (£2,023 per sq m) Terrace - £160,849 (£1,744 per sq m)

DL13

2.35 DH13 is located immediately to the north of DL12, to the West of the A68. The area predominantly comprises a number of small villages located along the River Wear. A large section of the postcode area forms part of the North Pennines Area of Outstanding Natural Beauty.

2.36 In terms of residential values, at the current time the average house value within DL13 for both new build and second hand sales equates to £154,650 (data taken from Zoopla.co.uk) and is therefore above the County’s current average of £137,325. This data shows an increase in values during the last 12 months of around 5.34%), therefore in excess of the County wide figure of a 1.68% increase during the same period).

2.37 In DL13 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £262,204 (£1,841per sq m) Semi-detached - £138,727 (£1,442 per sq m) Terrace - £101,842 (£1,281 per sq m)

DL14

2.38 DH14 is relatively small postcode area situated around the market town of Bishop Auckland (and also stretching to West Auckland to the South West). This is situated circa 11 miles south of the City of Durham, and benefits from good A road connections.

2.39 In terms of residential values, at the current time the average house value within DL14 for both new build and second hand sales equates to £114,806 (data taken from Zoopla.co.uk) and is therefore significantly below the County’s current average of £137,325. This data shows an increase in values during the last 12 months of around 3.12%), therefore significantly in excess of the County wide figure of a 1.68% increase during the same period).

2.40 In DL14 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £188,107 (£1,496 per sq m) Semi-detached - £112,972 (£1,313 per sq m) Terrace - £74,107 (£887 per sq m)

DL15

2.41 DH15 is located circa 5 – 10 miles south west of the City of Durham. The area mainly comprises small villages, interspersed with agricultural land. The main access route is via the A68 in the far west of the postcode area.

2.42 In terms of residential values, at the current time the average house value within DL15 for both new build and second hand sales equates to £114,840 (data taken from Zoopla.co.uk) and is therefore significantly below the County’s current average of £137,325. This data shows a strong increase in values during the last 12 months of around 2.74%), therefore significantly in excess of the County wide figure of a 1.68% increase during the same period).

2.43 In DL15 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £180,737 (£1,485per sq m) Semi-detached - £101,764 (£1,184 per sq m) Terrace - £75,065 (£904 per sq m)

DL16

2.44 DH16 is located circa 5 miles south west of the City of Durham and 5 miles north east of Bishop Auckland. The main access route is via the A688, which provides a direct route to the A1 (M), which is around 5 miles to the east. The main settlement in the postcode area is the town of Spennymoor. The rest of the area mainly comprises small villages, interspersed with agricultural land.

2.45 In terms of residential values, at the current time the average house value within DL16 for both new build and second hand sales equates to £123,052 (data taken from Zoopla.co.uk) and is therefore slightly below the County’s current average of £137,325. This data shows a strong increase in values during the last 12 months of around 2.92%), in excess of the County wide figure of a 1.68% increase during the same period).

2.46 In DL16 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £189,736 (£1,475 per sq m) Semi-detached - £108,829 (£1,227 per sq m) Terrace - £80,912 (£990 per sq m)

DL17

2.47 DH17 is located adjacent to DL16, circa 5 miles south east of the City of Durham and 5 miles east of Bishop Auckland. Links to the road network are good, with the A1 (M) running through the postcode area. The main settlements in the postcode area are the towns of Ferryhill and Chilton. The rest of the area mainly comprises small villages, interspersed with agricultural land.

2.48 In terms of residential values, at the current time the average house value within DL17 for both new build and second hand sales equates to £94,554 (data taken from Zoopla.co.uk) and is therefore significantly below the County’s current average of £137,325. This data shows a strong increase in values during the last 12 months of around 4.98%), therefore over double the County wide figure of a 1.68% increase during the same period).

2.49 In DL17 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £191,722 (£1,539 per sq m) Semi-detached - £92,538 (£1,001 per sq m) Terrace - £60,747 (£1,012 per sq m)

SR7

2.50 SR7 is located to the east of the County, and includes the town of Seaham on the Durham Heritage coastline. The main road access route through the area is the A19, providing a direct link to Sunderland to the north and Peterlee to the South. Seaham also benefits from an existing train line through the town The city of Durham is located circa 10 miles to the West. The area is dominated by the settlements on Seaham and Murton.

2.51 In terms of residential values, at the current time the average house value within SR7 for both new build and second hand sales equates to £113,390 (data taken from Zoopla.co.uk) and is therefore significantly below the County’s current average of £137,325. This data shows a small fall in values during the last 12 months of around -0.15%), therefore over has performed poorly when compared to the County wide figure of a 1.96% increase during the same period).

2.52 In SR7 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £198,557 (£1,518 per sq m) Semi-detached - £108,549 (£1,432 per sq m) Terrace - £75,324 (£915 per sq m)

SR8

2.53 SR8 is located immediately to the South of SR7, again on the Durham Heritage coastline. The main road link is also the A19. The Southern half of the postcode area is dominated by the town of Peterlee, which includes a variety of industrial estates. A former mining area, the northern half of the postcode includes the settlement of Easington Colliery.

2.54 In terms of residential values, at the current time the average house value within SR8 for both new build and second hand sales equates to £95,794 (data taken from Zoopla.co.uk) and is therefore significantly below the County’s current average of £137,325. This data shows a strong increase in values during the last 12 months of around 1.48%), therefore slightly below the County’s average, which shows a 1.68% increase during the same period).

2.55 In SR8 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £181,881 (£1,367 per sq m) Semi-detached - £93,052 (£990 per sq m) Terrace - £64,634 (£904 per sq m)

TS21

2.56 TS21 covers a large geographical area (and roughly the southern third of the postcode falls outside County Durham, instead falling within Stockton Borough). This is located on the east side of the A1 (M), adjacent to Stockton-on-Tees in the south and circa 12 miles from the City of Durham to the north. The area includes the villages of Sedgefield, Butterwick and Fishburn.

2.57 In terms of residential values, at the current time the average house value within TS21 for both new build and second hand sales equates to £187,217 (data taken from Zoopla.co.uk) and is therefore above the County’s current average of £137,325. This data shows a modest increase in values during the last 12 months of around 2.77%), therefore this area has performed well when compared against the County wide average, which shows a 1.68% increase during the same period.

2.58 In TS21 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £270,834 (£2,002 per sq m) Semi-detached - £147,116 (£1,841 per sq m) Terrace - £125,765 (£1,668 per sq m)

TS27

2.59 TS27 covers a large geographical area (with a large section of the southern area of the postcode falling outside County Durham, instead falling within Hartlepool Borough). This is located immediately to the south of SR8, with part of the area running along the Durham Heritage Coastline. This is, again, a former mining area, and includes the settlement of Blackhall Colliery.

2.60 In terms of residential values, at the current time the average house value within TS27 for both new build and second hand sales equates to £144,760 (data taken from Zoopla.co.uk) and is therefore slightly above the County’s current average of £137,325. This data shows effectively a 3.45% increase in values during the last 12 months and therefore, as an area, has performed well when compared with the County wide figure which shows a 1.68% increase during the same period).

2.61 In TS27 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £239,733 (£1,765 per sq m) Semi-detached - £121,886 (£1,346 per sq m) Terrace - £87,790 (£1,238 per sq m)

TS28

2.62 TS28 is located to the west of the A19, and falls across both the Eastern and Southern Delivery Areas, circa 11 miles south east of the City of Durham. The area includes only a handful of small settlements, interspersed with agricultural land.

2.63 In terms of residential values, at the current time the average house value within TS28 for both new build and second hand sales equates to £113,303 (data taken from Zoopla.co.uk) and is therefore significantly below the County’s current average of £137,325. This data shows 2.93% increase in values during the last 12 months and therefore, as an area, has performed well when compared with the County wide figure which shows a 1.68% increase during the same period).

2.64 In TS28 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £174,413 (£1,615 per sq m) Semi-detached - £90,498 (£840 per sq m) Terrace - £79,217 (£947 per sq m)

TS29

2.65 TS29 is located immediately to the west of TS28, circa 11 miles south east of the City of Durham. Again, the area includes only a handful of small settlements, interspersed with agricultural land.

2.66 In terms of residential values, at the current time the average house value within TS29 for both new build and second hand sales equates to £99,027 (data taken from Zoopla.co.uk) and is therefore significantly below the County’s current average of £137,325. This data shows effectively a nil increase in values during the last 12 months and therefore, as an area, has performed poorly when compared with the County wide figure which shows a 1.68% increase during the same period).

2.67 In TS29 these are currently showing (data from Zoopla.co.uk) the following averages (excluding flats):

Detached - £175,033 (£1,507 per sq m) Semi-detached - £86,519 (£1,044 per sq m) Terrace - £73,147 (£775 per sq m)

3.0 New Build Housing – Comparable Evidence

3.1 As part of HMRC / VOA we have access to detailed information on all residential transactions (submitted through Stamp Duty Land Tax returns), as well as additional details held on individual properties used in determining Council Tax bands.

3.2 For the purposes of this study we have looked to identify average values (on a per sq m basis) of dwellings within modern residential estates. We have limited the evidence to estates that fall within (or at least close to) the boundaries of County Durham and also transactions which have occurred since January 2012.

3.3 The evidence identified is summarized below. Please note the average sizes given reflect the approximate Net Sales Area, as defined by the RICS Property Measurement 1st Edition:

3.4 In DH1 we note new build house sales achieved at the following:

- Bellway, Brakespear Close, Redhills Lane: west of the city centre. 12 x 4/5 bed detached houses sold between Nov 13 and May 14. Average size 135 sq m. Average sales price equivalent to circa £2,629 per sq m.

- Charles Church, Chevallier Court: south of the city centre, located close to Durham University Business School. 11 x 4/5 bed detached houses sold between Dec 14 and Dec 15. Average size 222 sq m. Average sales price equivalent to circa £3,243 sq m.

- Gentoo, The Bowers: west of the city centre, reasonably close to the Bellway Brakespear Close scheme. 3 / 4 storey style ‘townhouse’ style accommodation. 1 x 3 bed detached houses sold Aug 15, circa 94 sq m for equivalent of £2,246 per sq m. 6 x 4 bed semi-detached houses sold between Dec 14 and Apr 15 at an average size of 155 sq m, achieving an average of circa £2,571 per sq m. 4 x 4 bed terraced houses sold between Dec 14 and Jun 15 at an average size of 146 sq m, achieving an average of circa £2,621 per sq m.

- Hedley Park Developments, Green Lane: east of the city centre, located close to Durham County Court. 8 x 2/3 bed flats sold between Dec 12 and Nov 15. Average size 62 sq m. Average sales price equivalent to circa £5,171 sq m.

- Keepmoat, Byland Close / Juniper Way: south west of the city centre, reasonably close to the Bellway Brakespear Close scheme. 18 x 3 bed terraced houses (3 storey) sold between Oct 12 and May 13. Average size 89 sq m. Average sales price equivalent to circa £2,556 sq m.

- Keepmoat, Wells Grove: located away from the city centre, to the north. 7 x detached houses sold between Mar 14 and Jun 14 at an average size of 104 sq m, achieving an average of circa £2,074 per sq m. 4 x 3 storey semi- detached houses sold in Mar 14 at an average size of 98 sq m, achieving an average of circa £1,841 per sq m.

- Miller Homes, Framwellgate Moor: suburban area located away from the city centre, to the north. Mix of 2 / 2.5 storey dwellings. 34 x 4 – 6 bed detached houses sold between Sep 12 and Feb 16 at an average size of 158 sq m, achieving an average of circa £2,012 per sq m. 29 x 2 – 4 bed semi-detached houses sold between Jun 12 and Mar 16 at an average size of 104 sq m, achieving an average of circa £2,017 per sq m. 16 x 3 – 4 bed terraced houses sold between Feb 12 and Nov 15 at an average size of 107 sq m, achieving an average of circa £2,098 per sq m.

- Barratts / David Wilson, Wilkinson Walk: 8 x 4 – 5 bed detached houses sold between Oct 15 and Mar 16 at an average size of 203 sq m, achieving an average of circa £2,914 per sq m.

3.5 In DH6 we note new build house sales achieved at the following

- Barratts, The Limes, Coxhoe: edge of village location, just off A1 (M). Mix of 2 / 2.5 storey dwellings. 43 x 3/4 bed detached houses sold between Jan 12 and Sep 15 at an average size of 96 sq m, achieving an average of circa £1,867 per sq m. 23 x 2/3 bed semi-detached houses sold between Mar 12 and Jun 15 at an average size of 93 sq m, achieving an average of circa £1,653 per sq m. 41 x 2/3 bed terraced houses sold between Nov 12 and Jun 15 at an average size of 71 sq m, achieving an average of circa £1,777 per sq m.

- Persimmon, Bell Avenue, Bowburn: edge of village location, just off A1 (M). Mix of 2 / 2.5 storey dwellings. 20 x 3/4 bed detached houses sold between Dec 13 and Dec 15 at an average size of 105 sq m, achieving an average of circa £1,807 per sq m. 14 x 3 bed semi-detached houses sold between Nov 13 and Dec 15 at an average size of 81 sq m, achieving an average of circa £1,675 per sq m. 29 x 3 bed terraced houses (mainly 3 storey) sold between Jun 14 and Dec 15 at an average size of 87 sq m, achieving an average of circa £1,459 per sq m.

- Taylor Wimpey, Harle Oval, Bowburn: edge of village location, just off A1 (M). 2 storey dwellings. 22 x 3/4 bed detached houses sold between Jul 12 and Sep 14 at an average size of 113 sq m, achieving an average of circa £1,588 per sq m. 15 x 3 bed semi-detached houses sold between Sep 12 and Dec 13 at an average size of 76 sq m, achieving an average of circa £1,489 per sq m. 12 x 2/3 bed terraced houses sold between Jan 12 and Jun 13 at an average size of 64 sq m, achieving an average of circa £1,423 per sq m.

- Dunelm Homes, Bell Avenue et al, Bowburn: edge of village location, just off A1 (M). 2 storey dwellings. 6 x 4 bed detached houses sold between Mar 12 and Oct 13 at an average size of 109 sq m, achieving an average of circa £1,667 per sq m. 12 x 2/3 bed terraced houses sold between Apr 12 and Apr 13 at an average size of 71 sq m, achieving an average of circa £1,606 per sq m.

- ESH Acorn Homes, Bell Avenue et al, Bowburn: edge of village location, just off A1 (M). 2 storey dwellings. 3 x 4 bed detached houses sold between May 14 and Mar 15 at an average size of 113 sq m, achieving an average of circa £1,747 per sq m. 7 x 3 bed semi-detached houses sold between Dec 13 and Dec 15 at an average size of 78 sq m, achieving an average of circa £1,697 per sq m.

3.6 In DH7 we note new build house sales achieved at the following

- Barratts, Ashwood Close et al, Sacriston: town location. Mix of 2 / 2.5 storey dwellings. 7 x 3/4 bed detached houses sold between Jun 12 and May 14 at an average size of 99 sq m, achieving an average of circa £1,601 per sq m. 11 x 3/4 bed semi-detached houses sold between Apr 12 and Oct 13 at an average size of 93 sq m, achieving an average of circa £1,442 per sq m. 19 x 2 – 4 bed terraced houses sold between May 12 and May 14 at an average size of 84 sq m, achieving an average of circa £1,455 per sq m.

- Persimmon, St Cuthberts Meadow et al, Sacriston: town location. Predominantly 2 storey dwellings. 10 x 3/4 bed detached houses sold between Mar 12 and Jan 15 at an average size of 118 sq m, achieving an average of circa £1,492 per sq m. 4 x 2/3 bed terraced houses (half the sample comprises 3 storey dwellings) sold between Jun 12 and Dec 13 at an average size of 77 sq m, achieving an average of circa £1,720 per sq m.

- Dunelm Homes, Holliday Close et al, Langley Moor: edge of village location. Predominantly 2 storey dwellings. 9 x 3/4 bed detached houses sold between Oct 13 and Apr 14 at an average size of 86 sq m, achieving an average of circa £1,680 per sq m. 8 x 3 bed semi-detached houses sold between Dec 13 and Oct 14 at an average size of 75 sq m, achieving an average of circa £1,617 per sq m. 8 x 2/3 bed terraced houses sold between Nov 13 and Aug 14 at an average size of 63 sq m, achieving an average of circa £1,564 per sq m.

- Shepherd Homes, Witton Station Court et al, Langley Moor: edge of village location. Mix of 2 / 2.5 storey dwellings. 5 x 3 – 5 bed semi-detached houses sold between Jun 12 and Mar 15 at an average size of 111 sq m, achieving an average of circa £1,923 per sq m. 17 x 3 – 5 bed terraced houses sold between May 12 and Mar 15 at an average size of 123 sq m, achieving an average of circa £2,310 per sq m.

- Gladedale, Woodridge et al, Langley Moor: edge of village location. Predominantly 2 storey dwellings. 51 x 3/4 bed detached houses sold between Sep 13 and May 15 at an average size of 126 sq m, achieving an average of circa £1,968 per sq m.

- Gleeson, South View et al, Ushaw Moor: edge of village location. Predominantly 2 storey dwellings. 7 x 3 bed semi-detached houses sold between May 14 and Apr 15 at an average size of 72 sq m, achieving an average of circa £1,428 per sq m. 16 x 2/3 bed terraced houses sold between Dec 12 and Feb 14 at an average size of 66 sq m, achieving an average of circa £1,481 per sq m.

3.7 In DH2 we note new build house sales achieved at the following

- Persimmon, Kensington Way, Newfield: edge of village location, to the west of Chester-le-Street. Mix of 2 / 2.5 storey dwellings. 34 x 3/4 bed detached houses sold between Nov 12 and Nov 15 at an average size of 99 sq m, achieving an average of circa £1,889 per sq m. 21 x 3 bed semi-detached houses sold between Apr 13 and Dec 15 at an average size of 81 sq m, achieving an average of circa £1,583 per sq m. 24 x 2/3 bed terraced houses sold between Nov 12 and Nov 15 at an average size of 79 sq m, achieving an average of circa £1,246 per sq m.

- Bellway, Chester Burn Close, Pelton Fell: edge of village location, to the west of Chester-le-Street. Predominantly 2 storey dwellings. 32 x 3/4 bed detached houses sold between Jan 12 and Nov 15 at an average size of 98 sq m, achieving an average of circa £1,780 per sq m. 41 x 2/3 bed semi- detached houses sold between Mar 12 and Nov 15 at an average size of 83 sq m, achieving an average of circa £1,648 per sq m. 18 x 2/3 bed terraced houses sold between Jan 12 and Oct 15 at an average size of 67 sq m, achieving an average of circa £1,622 per sq m.

3.8 In DH3 we note new build house sales achieved at the following

- Persimmon, Birtley: edge of town location, situated to the very northern tip of DH3, falling within the Metropolitan Borough of Gateshead. Close to the Angel of the North, therefore commuter location for Newcastle. Mix of 2 / 2.5 storey dwellings. 46 x 3/4 bed detached houses sold between Mar 12 and Jul 15 at an average size of 102 sq m, achieving an average of circa £2,044 per sq m. 22 x 2/3 bed semi-detached houses sold between Mar 12 and Dec 14 at an average size of 80 sq m, achieving an average of circa £1,801 per sq m. 22 x 2 – 4 bed terraced houses sold between Apr 12 and Jul 15 at an average size of 83 sq m, achieving an average of circa £1,581 per sq m.

- Bett Homes, Birtley: as per the Persimmon scheme above. 2 storey dwellings. 4 x 4 bed detached houses sold between Apr 12 and Oct 12 at an average size of 103 sq m, achieving an average of circa £1,971 per sq m. 4 x 3 bed semi-detached houses sold between Aug 12 and Sep 12 at an average size of 86 sq m, achieving an average of circa £2,086 per sq m.

- Gladedale, Birtley: as per the Persimmon scheme above. Mix of 2 / 2.5 storey dwellings. 42 x 3/4 bed detached houses sold between Apr 12 and Aug 13 at an average size of 100 sq m, achieving an average of circa £2,065 per sq m. 13 x 3 bed semi-detached houses sold between Aug 12 and Jul 13 at an average size of 85 sq m, achieving an average of circa £2,027 per sq m. 3 x 3 bed terraced houses sold between Dec 12 and Mar 13 at an average size of 83 sq m, achieving an average of circa £1,801 per sq m.

- Cecil M Yuill, Birtley: as per the Persimmon scheme above. Mix of 2 / 2.5 storey dwellings. 12 x 3/4 bed detached houses sold between Dec 12 and Sep 13 at an average size of 125 sq m, achieving an average of circa £2,047 per sq m.

- Gateshead Regeneration, Chester-le-Street: Mix of 2 / 2.5 storey dwellings. 5 x 3/4 bed detached houses sold between Jun 15 and Oct 15 at an average size of 114 sq m, achieving an average of circa £2,358 per sq m. 11 x 3/4 bed semi-detached houses sold between Jun 15 and Feb 16 at an average size of 115 sq m, achieving an average of circa £1,863 per sq m.

3.9 In DH8 we note new build house sales achieved at the following

- Barratts, Elliot Way et al, Consett: just outside a town location. Mix of 2 / 2.5 storey dwellings. 39 x 3/4 bed detached houses sold between Jun 12 and Dec 15 at an average size of 99 sq m, achieving an average of circa £1,765 per sq m. 40 x 2 – 4 bed semi-detached houses sold between Feb 12 and Jul 15 at an average size of 91 sq m, achieving an average of circa £1,557 per sq m. 17 x 2 – 4 bed terraced houses sold between Mar 12 and Feb 16 at an average size of 81 sq m, achieving an average of circa £1,597 per sq m.

- Cecil M Yuill, Delves Lane, Consett: just outside a town location. Predominantly 2 storey dwellings. 17 x 3/4 bed detached houses sold between Jan 12 and Aug 13 at an average size of 111 sq m, achieving an average of circa £1,653 per sq m. 8 x 2/3 bed semi-detached houses sold between Apr 12 and Sep 13 at an average size of 77 sq m, achieving an average of circa £1,500 per sq m.

- Shepherd Homes, Delves Lane, Consett: just outside a town location. Mix of 2 / 2.5 storey dwellings. 12 x 3/4 bed detached houses sold between Dec 12 and Mar 15 at an average size of 103 sq m, achieving an average of circa £1,746 per sq m. 24 x 2/3 bed semi-detached houses sold between Feb 12 and Dec 14 at an average size of 75 sq m, achieving an average of circa £1,681 per sq m.

- Story Homes, Frazer Road et al, Shotley Briage: edge of village location, albeit adjoining the town of Consett. Predominantly 2 storey dwellings. 49 x 3 – 5 bed detached houses sold between Feb 13 and Mar 16 at an average size of 124 sq m, achieving an average of circa £2,078 per sq m. 14 x 2/3 bed semi-detached houses sold between Feb 13 and Oct 15 at an average size of 89 sq m, achieving an average of circa £1,630 per sq m. 11 x 2/3 bed terraced houses sold between Jan 14 and Mar 16 at an average size of 87 sq m, achieving an average of circa £1,612 per sq m.

- Keepmoat, Penrith Place et al, Moorside: edge of village location. Mix of 2 / 2.5 storey dwellings. 5 x 3/4 bed detached houses sold between Mar 12 and Nov 13 at an average size of 89 sq m, achieving an average of circa £1,515 per sq m. 9 x 2/3 bed semi-detached houses sold between Feb 12 and Jul 14 at an average size of 78 sq m, achieving an average of circa £1,341 per sq m. 43 x 2/3 bed terraced houses sold between Mar 12 and Sep 14 at an average size of 75 sq m, achieving an average of circa £1,278 per sq m.

3.10 In DH9 we note new build house sales achieved at the following

- Bett Homes, Acton Court et al, South Moor: edge of village location. 2 storey dwellings. 23 x 3/4 bed detached houses sold between Feb 12 and Jun 13 at an average size of 102 sq m, achieving an average of circa £1,602 per sq m.

- Dunlem Homes, Kielder Drive et al, The Middles, Stanley: just outside a town location. 2 storey dwellings. 10 x 3/4 bed detached houses sold between Nov 13 and Jul 14 at an average size of 99 sq m, achieving an average of circa £1,823 per sq m. 2 x 2/3 bed semi-detached houses sold between Nov 13 and Sep 14 at an average size of 72 sq m, achieving an average of circa £1,658 per sq m. 19 x 2/3 bed terraced houses sold between Dec 13 and Feb 15 at an average size of 61 sq m, achieving an average of circa £1,920 per sq m.

- Persimmon, Kielder Drive et al, The Middles, Stanley: just outside a town location. Mix of 2 / 2.5 storey dwellings. 10 x 3/4 bed detached houses sold between Dec 14 and Dec 15 at an average size of 101 sq m, achieving an average of circa £1,658 per sq m. 8 x 3 bed semi-detached houses sold between Apr 14 and Nov 15 at an average size of 86 sq m, achieving an average of circa £1,527 per sq m. 19 x 3 bed terraced houses sold between Jun 14 and Dec 15 at an average size of 80 sq m, achieving an average of circa £1,430 per sq m.

- Gladedale, Viscount Close et al, Catchgate: edge of a large village location. 2 storey dwellings. 32 x 3/4 bed detached houses sold between Apr 12 and Jun 14 at an average size of 93 sq m, achieving an average of circa £1,431 per sq m. 34 x 2/3 bed semi-detached houses sold between Feb 12 and Nov 14 at an average size of 65 sq m, achieving an average of circa £1,403 per sq m. 7 x 2/3 bed terraced houses sold between May 12 and Jan 14 at an average size of 60 sq m, achieving an average of circa £1,431 per sq m.

3.11 In DL4 we note new build house sales achieved at the following:

- Dunlem Homes, Sterling Way et al, Shildon: just outside a town location. Mix of 2 / 2.5 storey dwellings. 18 x 3/4 bed detached houses sold between Mar 14 and Jul 15 at an average size of 98 sq m, achieving an average of circa £1,712 per sq m. 4 x 3 bed semi-detached (3 storey) sold between Jun 15 and Oct 15 at an average size of 83.3, achieving an average price of circa £1,290 per sq m. 4 x 3 bed (3 storey) terraced houses sold between Apr 15 and Oct 15 at an average size of 101 sq m, achieving an average of circa £1,263 per sq m.

- Gleeson, Stephenson Court, Shildon: just outside a town location. 2 storey dwellings. 7 x 4 bed detached houses sold between Apr 13 and Aug 14 at an average size of 99 sq m, achieving an average of circa £1,473 per sq m. 11 x 3 bed semi-detached houses sold between Oct 12 and May 14 at an average size of 72 sq m, achieving an average of circa £1,457 per sq m.

- Persimmon, Drummond Way et al, Catchgate: edge of town location. Mix of 2 / 2.5 storey dwellings. 23 x 3 - 5 bed detached houses sold between Oct 13 and Dec 15 at an average size of 116 sq m, achieving an average of circa £1,620 per sq m. 37 x 3 bed semi-detached houses sold between Nov 13 and Dec 15 at an average size of 85 sq m, achieving an average of circa £1,484 per sq m. 5 x 3 bed terraced houses sold between Jul 14 and Feb 15 at an average size of 93 sq m, achieving an average of circa £1,453 per sq m.

3.12 In DL5 we note new build house sales achieved at the following:

- Gleeson, Yachley Close et al, Newton Aycliffe: town location. 2 storey dwellings. 3 x 4 bed detached houses sold between Mar 13 and May 13 at an average size of 99 sq m, achieving an average of circa £1,609 per sq m. 14 x 2/3 bed semi-detached houses sold between Aug 12 and Dec 13 at an average size of 71 sq m, achieving an average of circa £1,604 per sq m.

- Keepmoat, Bluestone Close et al, Newton Aycliffe: town location. Mix of 2 / 2.5 storey dwellings. 4 x 3/4 bed detached houses sold between Nov 14 and Mar 15 at an average size of 100 sq m, achieving an average of circa £1,697 per sq m. 24 x 3 bed semi-detached houses sold between Oct 14 and Mar 16 at an average size of 84 sq m, achieving an average of circa £1,591 per sq m. 25 x 2/3 bed terraced houses sold between Jul 14 and Feb 15 at an average size of 79 sq m, achieving an average of circa £1,644 per sq m.

- Miller Homes, Annand Way et al, Newton Aycliffe: town location. Mix of 2 / 2.5 storey dwellings. 14 x 3 – 5 bed detached houses sold between Jun 12 and Jun 13 at an average size of 124 sq m, achieving an average of circa £1,715 per sq m. 4 x 3 bed semi-detached houses sold between Sep 12 and Apr 13 at an average size of 87 sq m, achieving an average of circa £1,578 per sq m.

3.13 In DL14 we note new build house sales achieved at the following:

- Dunlem Homes, Ascot Way et al, St Helen Auckland: edge of large village location. 2 storey dwellings. 7 x 3/4 bed detached houses sold between May 14 and Oct 14 at an average size of 90 sq m, achieving an average of circa £1,636 per sq m. 9 x 2/3 bed semi-detached houses sold between Feb 12 and Sep 14 at an average size of 64 sq m, achieving an average of circa £1,404 per sq m. 7 x 2/3 bed terraced houses sold between Jan 12 and Jul 14 at an average size of 62 sq m, achieving an average of circa £1,437 per sq m.

- Persimmon, Dixon Way et al, Coundon: edge of large village location. Mix of 2 / 2.5 storey dwellings. 40 x 3/4 bed detached houses sold between May 12 and Dec 15 at an average size of 101 sq m, achieving an average of circa £1,605 per sq m. 34 x 2/3 bed semi-detached houses sold between Mar 12 and Jun 15 at an average size of 81 sq m, achieving an average of circa £1,508 per sq m. 18 x 3 bed terraced houses (majority being over 2 storey) sold between Nov 12 and Mar 15 at an average size of 81 sq m, achieving an average of circa £1,339 per sq m.

- Taylor Wimpey, Dixon Way et al, Coundon: edge of village location. 2 storey dwellings. 45 x 3/4 bed detached houses sold between Feb 12 and Apr 14 at an average size of 110 sq m, achieving an average of circa £1,296 per sq m.

3.14 In DL15 we note new build house sales achieved at the following:

- Beazer Homes, Wooley Meadows et al, St Helen Auckland: edge of village location. 2 storey dwellings. 14 x 3/4 bed detached houses sold between Mar 13 and Nov 15 at an average size of 99 sq m, achieving an average of circa £1,554 per sq m. 4 x 3 bed semi-detached houses (3 storey) sold between Dec 14 and Feb 16 at an average size of 71 sq m, achieving an average of circa £1,412 per sq m. 4 x 3 bed terraced houses (3 storey) sold between Apr 15 and Dec 15 at an average size of 67 sq m, achieving an average of circa £1,321 per sq m.

- Charles Church, Robinson Close et al, Willington: edge of a large village location. 2 storey dwellings. 16 x 2 – 5 bed detached houses sold between Jul 12 and Mar 16 at an average size of 136 sq m, achieving an average of circa £1,449 per sq m.

- Persimmon, Clement Way et al, Willington: edge of a large village location. 2 storey dwellings. 35 x 3 – 5 bed detached houses sold between May 12 and Feb 16 at an average size of 127 sq m, achieving an average of circa £1,605 per sq m. 8 x 3 bed semi-detached houses sold between Jun 12 and May 15 at an average size of 86 sq m, achieving an average of circa £1,508 per sq m.

- Linden Homes, Howden Green, Howden le Wear: edge of a village location. 2 storey dwellings. 11 x 3/4 bed detached houses sold between Jun 12 and Mar 14 at an average size of 143 sq m, achieving an average of circa £1,421 per sq m. 6 x 2 - 4 bed semi-detached (3 storey) houses sold between May 12 and Jun 14 at an average size of 140 sq m, achieving an average of circa £1,201 per sq m.

- Miller Homes, Kipling Way, Crook: edge of a town location. 2 storey dwellings. 17 x 3/4 bed detached houses sold between May 12 and Dec 12 at an average size of 114 sq m, achieving an average of circa £1,482 per sq m.

- Persimmon, Deerness Heights et al, Stanley Crook: edge of village location. 2 storey dwellings. 19 x 3/4 bed detached houses sold between Mar 12 and Dec 15 at an average size of 104 sq m, achieving an average of circa £1,541 per sq m.

3.15 In DL16 we note new build house sales achieved at the following:

- Barratts / David Wilson Homes, Morgan Drive et al, Spennymoor: edge of town location. Mix of 2 / 2.5 storey dwellings. 63 x 3 – 5 bed detached houses sold between Aug 12 and Feb 16 at an average size of 107 sq m, achieving an average of circa £1,838 per sq m. 40 x 2 - 4 bed semi-detached houses sold between Sep 12 and Jun 15 at an average size of 85 sq m, achieving an average of circa £1,653 per sq m. 56 x 3/4 bed terraced houses (number of which are 3 storey) sold between Mar 12 and Mar 16 at an average size of 93 sq m, achieving an average of circa £1,614 per sq m.

- Cecil M Yuill, Abbey Green et al, Spennymoor: edge of town location. Mix of 2 / 2.5 storey dwellings. 25 x 3/4 bed detached houses sold between Sep 12 and Oct 13 at an average size of 123 sq m, achieving an average of circa £1,601 per sq m. 9 x 3 bed semi-detached houses sold between Nov 12 and Sep 13 at an average size of 89 sq m, achieving an average of circa £1,620 per sq m. 3 x 2/3 bed terraced houses sold in Jul 13 at an average size of 85 sq m, achieving an average of circa £1,636 per sq m.

- Dunelm Homes, Watson Park et al, Spennymoor: town location. Mix of 2 / 2.5 storey dwellings. 22 x 3/4 bed detached houses sold between Sep 13 and Jun 15 at an average size of 104 sq m, achieving an average of circa £1,718 per sq m. 3 x 2/3 bed semi-detached houses sold between Nov 13 and Jul 15 at an average size of 70 sq m, achieving an average of circa £1,616 per sq m. 17 x 3/4 bed terraced houses sold between Sep 13 and Feb 15 (all 3 storey) at an average size of 105 sq m, achieving an average of circa £1,458 per sq m.

- Persimmon, Watson Park et al, Spennymoor: town location. Mix of 2 / 2.5 storey dwellings. 26 x 3/4 bed detached houses sold between Sep 12 and Feb 16 at an average size of 103 sq m, achieving an average of circa £1,640 per sq m. 4 x 2/3 bed semi-detached houses sold between Jun 12 and Jan 15 at an average size of 69 sq m, achieving an average of circa £1,664 per sq m. 58 x 2/3 bed terraced houses sold between Mar 12 and Jul 15 (some 3 storey) at an average size of 77 sq m, achieving an average of circa £1,584 per sq m.

- Taylor Wimpey, Queens Park Rd et al, Spennymoor: town location. Mix of 2 storey dwellings. 70 x 3/4 bed detached houses sold between Sep 12 and Mar 16 at an average size of 112 sq m, achieving an average of circa £1,582 per sq m. 15 x 2/3 bed semi-detached houses sold between Mar 13 and Nov 15 at an average size of 81 sq m, achieving an average of circa £1,670 per sq m.

- Taylor Wimpey, Snowdrop Close et al, Spennymoor: town location. Mix of 2 / 2.5 storey dwellings. 55 x 3/4 bed detached houses sold between Mar 12 and Jun 15 at an average size of 126 sq m, achieving an average of circa £1,408 per sq m. 12 x 3/4 bed semi-detached houses sold between May 12 and Jun 15 at an average size of 104 sq m, achieving an average of circa £1,401 per sq m. 13 x 3/4 bed terraced houses sold between Dec 12 and Oct 14 (majority 3 storey) at an average size of 106 sq m, achieving an average of circa £1,230 per sq m.

3.16 In DL17 we note new build house sales achieved at the following:

- Gladedale, Rushyford Drive et al, Chilton: edge of town location. 2 storey dwellings. 67 x 3/4 bed detached houses sold between Nov 12 and Aug 15 at an average size of 112 sq m, achieving an average of circa £1,781 per sq m. 29 x 2 - 4 bed semi-detached houses sold between Nov 12 and Apr 15 at an average size of 88 sq m, achieving an average of circa £1,628 per sq m.

3.17 In DL12 we note new build house sales achieved at the following:

- Taylor Wimpey, Ashtree Drive et al, Barnard Castle: edge of town location. 17 x 4 bed detached houses sold between Jun 14 and Jan 16 at an average size of 134 sq m, achieving an average of circa £2,386 per sq m.

3.18 In DH6 we note new build house sales achieved at the following:

- Cecil M Yuill, Crossways Court, Thornley: edge of village location. Mix of 2 / 2.5 storey dwellings. 17 x 3/4 bed detached houses sold between Feb 12 and Dec 13 at an average size of 131 sq m, achieving an average of circa £1,622 per sq m.

- Persimmon, Sorrel Close et al, Shotton Colliery: edge of village location. Mix of 2 / 2.5 storey dwellings. 42 x 3/4 bed detached houses sold between Nov 13 and Dec 15 at an average size of 103 sq m, achieving an average of circa £1,624 per sq m. 11 x 3 bed semi-detached houses sold between Dec 13 and Dec 15 at an average size of 79 sq m, achieving an average of circa £1,616 per sq m. 25 x 2/3 bed terraced houses (mainly 3 storey) sold between Dec 13 and Oct 15 at an average size of 75 sq m, achieving an average of circa £1,399 per sq m.

- Keepmoat, Hanover Crescent et al, Shotton Colliery: edge of village location. Mix of 2 / 2.5 storey dwellings. 6 x 3 / 4 bed detached houses sold between Oct 14 and Feb 16 at an average size of 97 sq m, achieving an average of circa £1,405 per sq m. 6 x 3 bed semi-detached houses sold between Dec 14 and May 15 at an average size of 87 sq m, achieving an average of circa £1,241 per sq m. 15 x 2/3 bed terraced houses sold between Oct 14 and Dec 15 at an average size of 76 sq m, achieving an average of circa £1,247 per sq m.

3.19 In SR7 we note new build house sales achieved at the following:

- Dunelm Homes, LInthorpe Avenue, Seaham: town location. 2 storey dwellings. 7 x 2/3 bed semi-detached houses sold between Mar 12 and Mar 13 at an average size of 65 sq m, achieving an average of circa £1,820 per sq m. 10 x 2/3 bed terraced houses sold between Mar 12 and Apr 14 at an average size of 72 sq m, achieving an average of circa £1,696 per sq m.

- Miller Homes, Mariners Way, Seaham: town location. 2/3 storey dwellings. 6 x 3/4 bed detached houses sold between Jun 12 and Aug 13 at an average size of 90 sq m, achieving an average of circa £1,869 per sq m. 22 x 2 – 4 bed semi-detached houses sold between Jun 12 and Mar 14 at an average size of 84 sq m, achieving an average of circa £1,824 per sq m. 10 x 2/3 bed terraced houses sold between Jun 12 and Mar 14 at an average size of 67 sq m, achieving an average of circa £1,964 per sq m.

- Cecil M Yuill, Denewood, Murton: town location. Mix of 2 / 2.5 storey dwellings. 5 x 3 bed semi-detached houses sold between Jun 12 and Jun 13 at an average size of 87 sq m, achieving an average of circa £1,368 per sq m. 15 x 2/3 bed terraced houses sold between Feb 12 and Jun 13 at an average size of 79 sq m, achieving an average of circa £1,513 per sq m.

3.20 In SR8 we note new build house sales achieved at the following:

- Bett Homes, Ramsey Close, Peterlee: town location. 2 storey dwellings. 3 x 3/4 bed detached houses sold between May 12 and Dec 12 at an average size of 88 sq m, achieving an average of circa £1,373 per sq m. 7 x 2/3 bed semi-detached houses sold between Mar 12 and Nov 12 at an average size of 59 sq m, achieving an average of circa £1,221 per sq m. 10 x 2/3 bed terraced houses sold between Mar 12 and Dec 12 at an average size of 60 sq m, achieving an average of circa £1,223 per sq m.

- Persimmon, Springbank, Peterlee: town location. Mix of 2 / 2.5 storey dwellings. 18 x 3/4 bed detached houses sold between Dec 14 and Feb 16 at an average size of 98 sq m, achieving an average of circa £1,885 per sq m. 32 x 2/3 bed semi-detached houses sold between Dec 14 and Mar 16 at an average size of 78 sq m, achieving an average of circa £1,668 per sq m. 9 x 3 bed (3 storey) terraced houses sold between Apr 15 and Dec 15 at an average size of 86 sq m, achieving an average of circa £1,350 per sq m.

4.0 Analysis / Conclusions

4.1 The Durham market is granular in nature, with residential values fluctuating significantly across short geographical distances. In this regard, we are of the view that it is difficult to arrive at a single ‘average’ figure that is appropriate for the whole County area. Instead, we consider it is more appropriate to look to adopt different rates for different locations within the County.

4.2 For example:

- The new build transactional evidence shows that locations within DH1 (i.e. the City of Durham), on average, support house prices in the region of £2,150 - £2,475 per sq m. In comparison, peripheral towns and villages located immediately around DH1 typically support significantly lower house values, in the region of £1,550 - £1,750 per sq m. In other words, the evidence identified suggests the City of Durham commands a premium in terms of residential values.

- Similarly, the evidence identified shows that schemes in and around Chester- le-Street, benefiting from a market looking to commute to Newcastle / Gateshead, also command a premium in terms of residential sales values (with prices in the region of £2,000 per sq m, compared with sub £1,750 per sq m in nearby settlements that fall outside the commuter market demand).

- Schemes that fall either within or around Newton Aycliffe should also be regarded as carrying a ‘premium’, showing a slightly higher average rate of circa £1,775 per sq m, when compared with other towns and villages in the immediate area (which tend to support lower average value in the region of £1,625 to £1,725 per sq m).

- In the rural West of the County there also appears to be a sharp difference in value between DL12 and DL13. DL12, which generally covers the area known as “Teesdale” (and includes the town of Barnard Castle) is considered to carry a premium over DL12 (broadly known as “Wear Valley”). The average values in Teesdale appear to be, broadly, 25% higher than that achievable in the Wear Valley. However, it should be noted that new build transactional evidence is limited in these more rural locations, and therefore a greater reliance has been placed on generic, land registry data. Ideally, as part of an area wide study, further research should be undertaken in these locations before any firm conclusions are reached.

4.3 The above examples are not intended to be exhaustive, as other settlements within the County may carry a premium (e.g. Seaham, Sedgefield etc).

4.4 When undertaking a Whole Plan and CIL Viability Study the granular nature of the County should therefore be recognised and be a key consideration when looking to determine appropriate average sales values representative of the local market for the purposes of the appraisal testing.