CIL Development Viability Study: Additional Residential Testing
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ReportReport GVA 10 Stratton Street London W1J 8JR CIL Development Viability Study: Additional Residential Testing & Analysis Swindon Borough Council 22 nd March 2013 gva.co.uk gva.co.uk gva.co.u k k gva.co.uk Swindon Borough Council CIL Economic Viability Study Additional Residential Testing and Analysis Contents Foreword .................................................................................................................................. 3 1. INTRODUCTION ........................................................................................................... 3 2. URBAN EXTENSIONS ................................................................................................... 3 ASSUMPTIONS .......................................................................................................................... 5 RESULTS ..................................................................................................................................... 9 CONCLUSIONS ...................................................................................................................... 13 3. CIL AS A PERCENTAGE OF VALUE AND COSTS ...................................................... 13 4. LAND REGISTRY DATA .............................................................................................. 16 Appendix A: Sustainable Urban Extensions Map..…………………………………………. 20 Appendix B: New Build Asking Prices...………………………………………………………. 24 Prepared By Charles Trustram Eve ........ Status . Director ................... Date 2 April 2013 For and on behalf of GVA Grimley Ltd 2 April 2013 | gva.co,uk 2 Swindon Borough Council CIL Economic Viability Study Additional Residential Testing and Analysis Foreword This Addendum is to be read in conjunction with GVA’s ‘CIL Development Viability Study Swindon Borough Council’ of June 2012. 1. INTRODUCTION 1.1 GVA has been instructed by the Council to carry out further work in respect of the residential testing and analysis to demonstrate the ability of different scales of housing development to potentially contribute to a CIL Charge. 2. URBAN EXTENSIONS 2.1 GVA has been instructed by Swindon Borough Council (SBC) to test the CIL viability levels in regard to the Sustainable Urban Extensions (SUE) in the Swindon area. This report forms an update to initial viability testing conducted as part of the original work for the CIL Development Viability Study 2012. The costs and values assumed in our appraisals for this update reflect market conditions as at March 2013 and follows further research into the asking and sold prices of new build properties in the Swindon area. 2.2 As agreed with Officers, we have tested a large or ‘strategic’ scale development scenario of 1,000 units and 2,000 units. This reflects the fact that much of the housing within the Study Area is to be delivered on SUEs. The Draft Swindon Borough Local Plan 2026 provides for five ‘new communities’ (Policy NC1), ranging in scale from 890 dwellings (Commonhead) to 8,000 dwellings (Eastern Villages). 2.3 Two of the proposed SUEs are to the north of Swindon town; two are located to the south and one larger area to the east made up of a number of existing and proposed villages. All of the five sites are within the administrative boundary of the Borough, see Plan at Appendix A. 2.4 The Table below provides an overview of the SUEs included within The Adopted Swindon Borough Local Plan 2011, which covers the period to 2026:- Table 1: List of the SUEs Wichelstowe Commonhead Proposed Tadpole Kingsdown Eastern Farm Villages Administration Swindon BC Swindon BC Swindon BC Swindon BC Swindon BC Affordable 30% 30% 30% 35% 35% Policy Dwellings 4,500 890 8,000 1,695 1,650 Employment 12 ha 15 ha 20 ha 5 ha Local 2 April 2013 | gva.co.uk 3 Swindon Borough Council CIL Economic Viability Study Additional Residential Testing and Analysis Wichelstowe Commonhead Proposed Tadpole Kingsdown Eastern Farm Villages Gross Ha 323 115 215 50 50 Persimmon/ Persimmon Crest None at Promoter Barratt/Taylor Homes and Various Nicholson Present Wimpey Redrow Homes 2.5 We have not undertaken an appraisal of any one of the actual sites but have adopted a hypothetical example, the Scheme, which mirrors the characteristics of many of them. 2.6 We have conducted the testing using the residual value model detailed in the main Report. For this purpose we have not taken into account the income derived from selling any employment land that is within the SUE, nor the land for the local centre. The income is likely to be modest relative to that for the housing land, unless a substantial convenience store is proposed. 2.7 Effectively the approach assumes that the sites are to be developed by housebuilders rather than companies who buy, service and then sell land; this mirrors the actual situation. It is usual for developers to seek a profit principally by reference to the end value of the private housing and the cost of the constructing the affordable housing (which is assumed to be transferred to a local Housing Association on a turnkey contract). It is acknowledged that the return on the cost of capital is also an important measure. Given the scale of the costs required to develop such sites, and the cashflow implications of the Enabling Costs, which are usually front loaded, it is our current experience that developers require a profit which effectively acknowledges not just the cost of the housing and the land but also the other costs. We have used a profit margin of 20% of GDV for the private housing and 6% of the affordable housing costs. 2.8 The assumptions we have made are based on the figures we have adopted for the testing of the other schemes, but also reflect the fact that such developments will inevitably be undertaken by large regional and national developers who benefit from economies of scale. The figures also reflect our experience of dealing with large scale schemes, including Wichelstowe. 2.9 With large sites the Council is faced with a significant challenge in deciding the extent to which it will use CIL, and the extent to which it will seek to continue to operate within the S106 regime. It can be expected that SUEs will generate many S106 requirements for onsite mitigation that are exclusive to the development, and therefore unlikely to be aggregated with S106 Agreements for other schemes. There are, however, some contributions which will almost certainly need detailed thought since they may be collected in common with other schemes, for example for secondary schools and off-site highway improvements. Notwithstanding the likelihood that SUEs can continue to be charged a significant S106, some Councils have decided that they will seek to use CIL in almost all cases, including for SUEs, and therefore that the residual S106 items will be minor in nature and cost. For example, Wiltshire Council has taken account of an expected £1,000 per dwelling to account for S278 and S106 obligations in its Draft 2 April 2013 | gva.co.uk 4 Swindon Borough Council CIL Economic Viability Study Additional Residential Testing and Analysis Charging Schedule viability testing. Similarly, Bristol City Council, whose CIL Charging Schedule came into effect on 1 January 2013, also took into account a £1,000 per dwelling charge in its viability assessment for CIL. 2.10 In discussion with Officers we have agreed that for the purpose of the testing we will illustrate the maximum CIL that would arise if the Councils seek to continue charge for S106 obligations equivalent to: (a) £6,000 per dwelling (private and affordable); or (b) £10,000 per dwelling (private and affordable); 2.11 In practice, the viability assessment undertaken for a planning application will first factor in the CIL payable and then the necessary S106 obligations. The residual sum will then show how much is available for affordable housing. For the purpose of this testing we have reversed this sequence and sought to illustrate how much is available to pay for CIL once one takes into account an assumed affordable housing requirement together with the adopted S106 payment. 2.12 For ease of reference we have focused only on the housing within the SUEs. In all cases there will also be other buildings that are potentially liable for CIL; however, for the benefit of this residential testing they have not been considered. ASSUMPTIONS Private Sales Values 2.13 The costs and values assumed in our current appraisals reflect market conditions as at March 2013 and follows further research into the asking and sold prices of new build properties in the Swindon area. In addition to our work on CIL viability, we have also been advising the Council since November 2012 in regard to the new build development of 4,500 homes in Wichelstowe. During the process of this work we have researched the Swindon new build market. 2.14 We have shown the results of the testing based on the original assumptions in the June 2012 Report together with the testing based on an assumed value based on the most recent research. Table 2: Private Sale Values 2013 and 2016 Low Value Medium Value High Value 2013 Value £1,580 per sq m £1,755 per sq m £2,120 per sq m £2,012 per sq m Residential Values (£147 per sq ft) (£163 per sq ft) (£197 per sq ft) (£187 per sq ft) 2.15 The 2013 Value is derived from desktop research relating to achieved and asking prices for a range of new build properties, in a range of developments currently under 2 April 2013 | gva.co.uk 5 Swindon Borough Council CIL Economic Viability Study Additional Residential Testing and