Viability Report Local Plan Viability Study
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Viability Report Local Plan Viability Study Isle of Wight Council August 2021 Private and Confidential Local Plan Viability Study Isle of Wight Council July 2021 Quality Assurance Date of Report 12th August 2021 Version 3 Filename and path S:\_Client Projects\1807 Isle of Wight Whole Plan Viability Study_Isle of Wight Council\2106_LPV Update\_Reports\_Public Document\210812 Isle of Wight_Local Plan Viability Report_v3.docx Prepared by Josh Wedge, Principal Consultant Atam Verdi, Director Checked by Atam Verdi, Director Date 30th July 2021 Authorised by Atam Verdi, Director Date 30th July 2021 Limitation This report has been prepared on behalf of and for the exclusive use of Aspinall Verdi Limited’s Client and it is subject to and issued in connection with the provisions of the agreement between Aspinall Verdi Limited and its Client. Aspinall Verdi Limited accepts no liability or responsibility whatsoever for or in respect of any use of or reliance upon this report by any third party. Local Plan Viability Study Isle of Wight Council July 2021 Contents Executive Summary Report 1 Introduction 7 Background 7 RICS Practice Statement 8 Objectivity, Impartiality and Reasonableness 9 Conflicts of Interest 9 Local Plan Reviewed 9 Structure 9 Covid-19 Uncertainty 10 2 National Policy Context 11 National Planning Policy Framework 11 Planning Practice Guidance for Viability 12 Planning for the Future and Changes to the Current Planning System 16 3 Local Policy Context 20 Draft Island Planning Strategy Policies 20 4 Methodology 23 Viability Modelling Best Practice 23 Typology Approach to Viability 24 Viability Testing of Key Sites 25 Development Appraisal Inputs 25 Guidance on Premiums / Land Value Adjustments 27 Brownfield / Greenfield Land Economics 30 Interpreting Viability Appraisals 34 5 Viability Assumptions 37 Typologies 37 Value Assumptions 41 Development Cost Assumptions 43 6 Viability Appraisal Results 52 Summary of Appraisal Results 57 Lower Value Areas 57 Higher Value Areas 58 Island Wide 58 7 Conclusions and Recommendations 59 Tables & Figures ES Figure 1 – Elements Required for a Viability Assessment iii ES Figure 2 - Viability Assessment Methodology (for illustrative purposes) iv ES Table 1 - Viability Appraisal Conclusions v Figure 4.1 Elements required for a viability assessment 23 Figure 4.2 Balance between RLV and TLV 24 Local Plan Viability Study Isle of Wight Council July 2021 Figure 4.3 - Example Hypothetical Appraisal Results 36 Figure 6.1 - Proposed Allocations by Residential Yield 37 Figure 6.2 - Proposed Allocations by Residential Yield and Site Typology 38 Figure 6.3 - Proposed Allocations by Residential Yield and Value Zone 38 Figure 6.4 - Map of the Location of Proposed Allocations 39 Table 6.1 - Summary of Development Typologies 39 Table 6.2 - Suggested Mix of Housing by Size and Tenure 40 Table 6.3 - Floor Area Assumptions (Sqm) 41 Table 6.4 - Unit Size and Sales Value Assumptions (>49 Unit Schemes) 41 Table 6.5 - Unit Size and Sales Value Assumptions (>50 Unit Schemes) 42 Table 6.6 - Older Persons Housing Value Assumptions 42 Table 6.7 - Residential Cost Assumptions 43 Figure 6.5 - Build Cost Analysis 45 Figure 6.6 - CGI from Isle of Wight Cost Comparable 46 Table 6.8 – SANGs Calculation 48 Table 6.9 - Timing Assumptions 49 Table 6.10 – Greenfield Benchmark Land Value Assumptions (Lower Value Area) 50 Table 6.11 –Brownfield Benchmark Land Value Assumptions (Lower Value Area) 50 Table 6.12 – Greenfield Benchmark Land Value Assumptions (Higher Value Area) 51 Table 6.13 –Brownfield Benchmark Land Value Assumptions (Higher Value Area) 51 Table 7.1 - Appraisal Summary of Typologies A-D (Lower Value Areas) 52 Table 7.2 - Appraisal Summary of Typologies E-H (Lower Value Areas) 53 Table 7.3 - Appraisal Summary of Typologies I-L (Lower Value Areas) 54 Table 7.4 - Appraisal Summary of Typologies N-P (Higher Value Areas) 55 Table 7.5 - Appraisal Summary of Typologies R-U (Island Wide) 56 Table 7.7 - Summary of Financial Appraisal Results 57 Appendices Appendix 1 – Policies Matrix Appendix 2 – Typologies Matrix Appendix 3 – Land Market Review Appendix 4 – Residential Market Paper Appendix 5 – BCIS Build Costs Appendix 6 – Residential Development Appraisals Local Plan Viability Study Isle of Wight Council July 2021 Executive Summary ES 1 AspinallVerdi has been appointed by Isle of Wight Council (IoWC, the Council, the Local Planning Authority (LPA) as the context requires) to provide a Financial Viability Assessment (FVA) in respect of the Council’s draft Island Planning Strategy (IPS) (2021). ES 2 This study is an update of the earlier viability work undertaken to inform the draft Island Planning Strategy (2018) which is available on the Council’s website. ES 3 The primary aim of this update is to produce an up-to-date viability assessment taking into account changes in both planning policy but also the property market. The report will form a robust and sound evidence base for the IPS to be adopted. ES 4 In carrying out our review of the IPS, we have had regard to the cumulative impact on development of all planning policies. The assessment of development viability is based on a typology approach, enabling us to advise on affordable housing (in terms of quantum and mix) and levels of Section 106 that can be delivered, in the context of the emerging Plan. ES 5 To provide background context to this update, we summarise the conclusions from the 2018 study below – this focuses on each specific use that was tested. Residential ES 6 In the 2018 study, the following conclusions were made: Greenfield typologies in higher value zones were viable at 35% affordable housing with £11,000 per dwelling of Section 106 contributions. Brownfield typologies in higher value zones were generally viable at 35% affordable housing with up to £8,000 per dwelling of Section 106 contributions. It was only flatted typologies that were unviable at even 0% affordable housing. Greenfield typologies in lower value zones were viable at 30-35% affordable housing. Brownfield typologies in the lower value zone were generally viable at 35% affordable housing. Rural Exception Sites (RES) required around 5% of units to be market housing to be viable with the full policy requirements. The market housing requirement may need to be up to 20% where there is flood mitigation required. ES 7 This updated study will re-test the viability of residential sites as a result of changes to site allocations, policies (at a national and local level) and ultimately, the market in terms of cost and value. i Local Plan Viability Study Isle of Wight Council July 2021 Specialist Residential ES 8 Both sheltered housing and extra care housing were unviable with the full policy requirement including 35% affordable housing. ES 9 Holiday let accommodation is only marginally viable at the full policy requirement and 35% affordable housing. The viability buffer was marginal and flexibility was recommended with regards to these typologies. ES 10 We have not re-tested these typologies and would continue to recommend adopting a flexible site-specific approach to older persons housing schemes and holiday accommodation. Retail ES 11 In terms of retail uses, the 2018 study concluded that convenience retail was marginally viable, but it was highlighted that the appraisal and viability was very sensitive to value and cost. Comparison retail was unviable and it was recommended that for all retail development, the Council seeks mitigation on a case-by-case basis rather than through the introduction of a Community Infrastructure Levy. ES 12 We are not re-appraising the retail uses given that the viability of this type of development is likely to have declined. The retail market has continued to face challenges and this has been exacerbated by Covid-19. Our conclusions to seek mitigation on a site-by-site basis still remain. Employment ES 13 In terms of employment uses, both office and industrial development were shown to be unviable in 2018 and therefore, the recommendation was made to be flexible with respect to how this type of development is delivered. ES 14 Whilst the national industrial market has improved since the time of our report, we know from experience elsewhere that the viability of industrial development can be challenging. Any pre- determined tax such as CIL is only likely to deter development. Mitigation should be sought on a site-by-site basis. Therefore, we have not re-appraised this use. Approach ES 15 We have reviewed the new Island Planning Strategy (2021) in order to test the cumulative impact of these policies in the context of the Local Plan. Please see Appendix 1 which summarises our assessment of the policies. ii Local Plan Viability Study Isle of Wight Council July 2021 ES 16 Through reviewing the new Plan and through our property market research, we have established a range of development typologies that we have financially appraised to assess the viability of the plan. The typologies are summarised at Appendix 2. ES 17 The viability of the typologies has been assessed using a financial viability appraisal, having regard to primary legislation, planning policy, statutory requirements and professional guidance as set out in chapters 2-Error! Reference source not found.. ES Figure 1 illustrates the elements required for a viability assessment. ES Figure 1 – Elements Required for a Viability Assessment Source: Local Housing Delivery Group, 20121 ES 18 Through our policy review, we have identified the policy requirements. Our property market research has focused on two elements of the above diagram: Land values – this informs the viability analysis by assessing whether the land value generated by policy compliant development is sufficient enough to incentivise landowners to sell land for development. This is referred to as a Benchmark Land Value (BLV), which is effectively the minimum price at which a landowner would typically sell land at.