Report Appendices CP Viability Ltd August 2018

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Viability and Deliverability Report (Local Plans) Supporting Newcastle City Council Pre-Submission Development and Allocations Plan (Sept. 2018) & Gateshead Council Submission Draft Making Spaces for Growing Places (Sept. 2018) APPENDICES

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 1a: Residential Value Areas - Newcastle (2015)

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 1a: Residential Value Areas - Gateshead (Nov. 2016)

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 1b: Newcastle - Commercial Value Areas (2015)

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 1b: Commercial Value Areas - Gateshead (Oct. 2015)

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 1c: Newcastle CIL – Residential Charging Zones (2016)

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 1c: Gateshead CIL – Residential Charging Zones (Nov. 2016)

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 1d: Newcastle CIL – Commercial Charging Zones (2016)

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 1d: Gateshead CIL – Commercial Charging Zones (Nov. 2016)

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 2a: 2017 Questionnaire on Viability Assumptions (Community Infrastructure Levy and Local Plan)

2017 Questionnaire on Viability Assumptions (Community Infrastructure Levy and Local Plan)

Figure 1

RESIDENTIAL VALUES HIGH HIGH-MID MID LOW-MID LOW Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 AVERAGE RATE £/m2 2,948 2,457 2,047 1,801 1,583 Size (m2) Sales Values (£/unit) 1 bed flat 45 131,180 109,316 91,097 80,165 70,448 2 bed flat 66 193,085 160,904 134,087 117,996 103,694 3 bed flat 85 250,568 208,807 174,006 153,125 134,564 2 bed house 75 219,616 183,013 152,511 134,210 117,942 3 bed house 96 282,995 235,829 196,524 172,941 151,979 4 bed house 118 347,847 289,873 241,561 212,573 186,807

Newcastle - http://www.newcastle.gov.uk/sites/drupalncc.newcastle.gov.uk/files/wwwfileroot/planning-and-buildings/planning/residential_values_map1.pdf

Gateshead - http://www.gateshead.gov.uk/DocumentLibrary/Building/PlanningPolicy/CIL/DOCS/Gateshead-Draft-Residential-Value-Band-Map.pdf Do you agree with these assumptions? Yes No 10

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

If NO, please justify your position by providing evidence below

Figure 2

FIGURE 2 BENCHMARK VALUE - RESIDENTIAL

Zone 1 Zone 2 Zone 3 Zone 4 Zone 5

HIGH HIGH-MID MID LOW-MID LOW

Average Rate £/m2 2,948 2,457 2,047 1,801 1,583

Urban/Suburban £/ha £ 2,100,000 £ 1,600,000 £ 1,000,000 £ 600,000 £ 200,000

£/acre £ 849,858 £ 647,511 £ 404,694 £ 242,817 £ 80,939

Strategic Sites £/ha £ 530,000 £ 480,000 £ 420,000 £ 380,000 £ 360,000

£/acre £ 214,488 £ 194,253 £ 169,972 £ 153,784 £ 145,690

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Figure 3

BENCHMARK VALUE - COMMERCIAL

High Medium Low Urban/Suburban £/ha £ 2,100,000 £ 1,000,000 £ 200,000 Non-Urban £/ha @ £ 530,000 £ 420,000 £ 360,000 Industrial £ 235,000 £ 235,000 £ 235,000

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Figure 4

RENTAL AND CAPITAL VALUES AND YIELDS FOR COMMERCIAL SCHEMES

Scheme Type Rental Value £/m2 Low Med High City Centre A1 - Retail Warehouse 129 161 194 Yield 6.00% 6.00% 5.25% A1, A2, A3, A4, A5 - Small Retail 60 88 237 400 overall Yield 8.50% 8.50% 7.50% 7.25% Supermarket 215 215 215 215 Yield 4.50% 4.50% 4.50% 4.50% B1(a) Offices 86 108 161 240 12

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Yield 8.00% 8.00% 8.00% 6.50% B2 Industrial 50 60 75 Yield 10.00% 7.5% 7.00% C1 Hotels 45,000 45,000 90,000 115,000 CV/ROOM Yield C2 Residential Institution 1,200 1,200 2,500 2,500 CV/M2 Yield Student Housing 2,800 2,800 3,660 3,660 MR/ROOM Yield 6.50% 6.50% 6.00% 6.00% Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Figure 5

STUDENT HOUSING

EN-SUITE ONLY CITY CENTRE OTHER AREAS GROSS GROSS GROSS RENT/WEEK WEEKS/YEAR RENT/YR/RM WEEKS/YEAR RENT/YR/RM NEWCASTLE UNIVERSITY £ 110 43 £ 4,719 £ 92 38 £ 3,490 £ 101 42 £ 4,242 £ 106 £ 105 38 £ 3,981 £ 104 38 £ 3,952 £ 107 42 £ 4,484 NORTHUMBRIA UNIVERSITY 13

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

£ 103 43 £ 4,429 £ 82 43 £ 3,507 AVERAGE GROSS YEARLY RENT/RM £ 4,301 £ 3,498 EXPENDITURE ALL INC. FM CHARGE @ 15% £ 645 15% £ 525

NET AVERAGE RENTAL INCOME/RM £ 3,656 £ 2,974 SAY £ 3,660 £ 2,980

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Figure 6

TYPICAL RENT FREE PERIODS

Scheme Type Months A1 - Retail Warehouse 12 A1, A2, A3, A4, A5 - Small Retail 12 Supermarket 6 B1(a) Offices 12 B2 Industrial 10 C1 Hotels 0 C2 Residential Institution 0 Student Housing 0

Do you agree with these assumptions? Yes No 14

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

If NO, please justify your position by providing evidence below

Figure 7

BUILD COST DATA (BCIS MEDIAN Q4 2012, LOCATION INDEX 0.90 - OTHER THAN AS STATED

BCIS Build Cost Use Class Property Type (£/sq.m.) Gross to Net C3 - Houses (one off) HIGH MEDIAN 1447 100% HIGH MID 1389 100% MID 1330 100% LOW MID 1272 100% LOW LOWER QTLE 1213 100% C3 - Houses - Mixed Developments HIGH MEDIAN 997 100% HIGH MID 968 100% MID 939 100% LOW MID 909 100% LOW LOWER QTLE 880 100% C3 - Flats - City Centre 6 storey+ flats 1467 83% C3 - Flats - Non City Centre 3-5 storey HIGH MEDIAN 1136 83% HIGH MID 1100 83% BASED ON MID 1064 83% RESIDENTIAL LOW MID 1027 83% Q4 2012, LOC LOW LOWER QTLE 991 83% INDEX 0.90 A1 - Shops Retail Warehouse (non-food) 466 90% A1 - Shops - Supermarket Supermarket 1121 95% A1, A2, A3, A4, A5 - Small Retail Convenience Store - not in City Centre 607 90% City Centre 955 78% 15

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

B1(a) Offices Urban Core. 3-5 storeys, air conditioning 1457 80% Neighbourhoods. Offices (Generally) 1365 85% B1 Light Industrial B2, B8 - Industrial Industrial Warehouse (Purpose Built) 671 100% C1 - Hotel City Centre & High 1282 100% Hotel - other zones 1199 100% C3 – Assisted Living Nursing Home 1252 83% Shared Accommodation Student Housing 1126 100%

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Figure 8

EXTERNALS ALLOWANCE Scheme Type Externals Allowance - Percentage of Base Build Cost Residential 10% Commercial 11.25% to 15%

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Figure 9

DEVELOPMENT COSTS - FEES, FINANCE & PROFIT - RESIDENTIAL Item Description Professional Fees 10% of build costs including planning, building regs, insurances etc Site Acquisition Fees 1.00% of purchase price - Agents Fees 0.75% of purchase price - Legal Fees 5% of purchase Price - SDLT Finance 6% per annum Marketing Costs 3.5% sales fees £600 per unit legal fees Developer Profit on GDV 6% Affordable Housing 20% Private Housing s.106 1000 Per Unit Urban Sites 5000 Per Unit Non-Urban Sites Abnormals Allowance 5% on build costs City Centre Abnormals Allowance 5% on build costs Contingency 5% on build costs Externals 10% on build costs NHBC £500 per unit EPC £500 per unit Sales Timings Scheme No.'s First Sale Sales per annum Sales/Qtr I unit scheme 9 25 6.25 2-25 unit schemes 9 25 6.25 50 unit scheme 12 30 7.50 100 unit scheme 12 35 8.75 17

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

250 unit scheme 12 50 12.50

DEVELOPMENT COSTS - FEES, FINANCE & PROFIT - COMMERCIAL Item Description Professional Fees 10% of build costs including planning, building regs, insurances etc Site Acquisition Fees 1.00% of purchase price - Agents Fees 0.75% of purchase price - Legal Fees 5% of purchase Price - SDLT(Av) Finance 6.50% per annum Finance Arrangement Fee 0.10% of cost Marketing Costs 1.00% sales fees where applicable 10% letting fees (percentage of annual income) Legals on Lettings 5.00% percentage of annual income Legals on Sale 0.25% percentage GDV on costs (save shared on costs (shared Developer Profit acc.) 20% acc.) 15% s.106 0 EPC/m2 £ 0.50 Abnormals Allowance 5% on build costs City Centre Abnormals Allowance 5% on build costs Contingency 5% on build costs Externals 11.25% on build costs to 15% on build costs

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Figure 10

BUILD PERIODS (MONTHS) - RESIDENTIAL Scheme Type Build Period I unit scheme 9 2-25 unit schemes 12 50 unit scheme 24 100 unit scheme 36

BUILD PERIOD (MONTHS) - COMMERCIAL Scheme Type Build Period Retail warehouse 9 Convenience store 12 Supermarket 12 Office building - centre 14 Office building - out of town business park 14 Industrial warehouse 6 Hotel 16 Nursing home 16 Student housing 16

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Figure 11

Generic Residential and Assisted Living Scheme: Residential Unit Sizes (Gross Internal Area)

UNIT TYPE VA2 VA3 1 bed flat 45m2 No change 2 bed flat 60m2 No change 3 bed flat 75m2 No change 2 bed house 70m2 No change 3 bed house 84m2 No change 4 bed house 120m2 121m2 ASSISTED LIVING 1 Bed 55m2 No change 2 Bed 75m2 No change

Do you agree with these assumptions? Yes No

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

If NO, please justify your position by providing evidence below

Figure 12

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 2a: 2017 Viability Questionnaire Response Summaries Comment Respondent Issue Summary of Comment Response Number

Thank you for involving Northumberland County Council Planning Policy Team on this matter, we consider these assumptions are broadly in line with our evidence and assumptions on whole plan Support for the approach taken is 1 Northumberland County Council General viability. Broadly agree with the standard approach set out to welcomed. utilise BCIS including the relevant locational coefficient for the area covered.

5 residential value areas were identified in 2012 and this approach has continued - the accuracy of these is vital. Dunston Hill is identified incorrectly in a high value area (£236per sqft) and should be in a mid-high value area, noting the prices paid at the Dunston Hill hospital site adjacent a more affluent area at a peak This is a continuation of the approach in the market of £214per sqft) - recommend assumption of £200 adopted for the Core Strategy and for CIL 2 Persimmon Residential Value Areas per sqft. and the Council will continue to review High-Mid land at Wardley is also queried as not consistent with and update evidence on viability. values in the area at Rannoch Close, Parklands Court and Kenmore Close which are in line with mid to low/mid assumptions. Callerton -our view on revenues remains the same that they will be between £198-203 per sqft rather than the £228per sqft in the High-Mid zone.

Support the use of the most up to date BCIS evidence as the most Support for the approach taken is 3 Persimmon Build Costs reliable evidence. welcomed.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

The Council's total allowance for 10% is inadequate for large strategic sites and does not reflect externals, contingency and professional scope of costs (roads, footpaths, drainage etc..) which have been fees at 25% is in line with other viability escalating in recent years, with provision for future management appraisal data and other local authority 4 Persimmon Externals and adoption of landscaping provision, for example. Allowance studies. This is a continuation of the should be increased to 20% in line with HBF reps to viability approach adopted for the Core Strategy assessments in the North East to avoid working at the margins of and for CIL and the Council will continue viability. to review and update evidence on viability.

Abnormals are rarely as low as 5% of build costs and evidence from various Persimmon sites (Wheatfied Road - Westerhope at The approach to abnormals is a 14.5%; Bedlington - Slayley Court at 13.6%) referred to justify a continuation of the previous approach minimum recommended rate of 10% - acknowledge area wide 5 Persimmon Abnormals adopted for the Core Strategy and for CIL approach, but there are always unforeseen issues relating to and is felt to be appropriate for plan-wide foundations, contamination, servicing and drainage attenuation, testing purposes. for example. A cautious approach is required to ensure sites can be delivered viably.

This is proposed at 6% on basis of pre-sale agreements with Registered Providers - however there is a different financial The assumptions made, including on climate with central government funding for RPs being halved profit levels for affordable housing, are a and restrictions from lenders - therefore less funds and capacity continuation of the previous approach Affordable Housing to deliver such projects. For other types of affordable housing 6 Persimmon adopted for the Core Strategy and for CIL, Profit (shared ownership, discounted open market value) the developer with some adjustments, and is felt to be is subject to additional costs - such as marketing and no fixed appropriate for plan-wide testing point of sale - additional risk which should be factored in. purposes. Persimmon recommend increasing affordable profit margin to nearer the 20% level set for market provision.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

For Local Plan viability the Council will continue to aim to strike a balance to Notes that national policy requires careful attention to viability to ensure that policy costs do not prevent strike a balance between funding infrastructure from CIL and sites and development from coming ensuring viable development. The cumulative impacts of 7 Taylor Wimpey National Context forward. This is a continuation of the standards, policies and supplementary planning documents must approach adopted for the Core Strategy be considered, and CIL needs to be proportionate and must not and for CIL and the Council will continue undermine development viability. to review and update evidence on viability.

The CIL Charging Zones were examined Request clarification on whether the CIL charging zones are still and adopted in 2016 and remain valid 8 Taylor Wimpey CIL Charging Zone Maps relevant and based on up to date evidence on residential values in whilst the Council will continue to review various zones. Note that they were prepared in June 2012. and update evidence on viability to underpin the Local Plan.

Average sales values per sqm do not reflect the market - there are differential sales values within any given zone. The combination of CIL on top of S106 on various TW sites in Newcastle and Gateshead could undermine the viability of these sites, in The assumptions made are a continuation particular the Crawcrook site. Sales value assumptions are too of the previous approach adopted for the high. The high-mid assumption is £2457/sqm - reflects values on Core Strategy and for CIL, whilst the 9 Taylor Wimpey Residential Sales Values one part of Newcastle Great Park, but two other sites fall below Council will continue to review and this assumption. Sales values at Crawcrook fall well below (20%) update evidence on viability. Costs in the this assumed level. TW questions the validity of evidence form of CIL and S106 are included in the underpinning sales values assumptions. Only very high value areas Councils Plan wide viability testing. can withstand S106 and CIL, and still ensure reasonable value to the land owner. A reasonable buffer has not been provided and CIL is threatening the viability of sites.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

The assumptions made are a continuation of the previous approach adopted for the Core Strategy and for CIL, whilst the Greater transparency is needed on the differences between the Council will continue to review and CIL charging zones and between categories urban/suburban and update evidence on viability - the 10 Taylor Wimpey Land Value Assumptions strategic sites - why are strategic sites in the low zone considered approach taken in regard to CIL higher value that urban/suburban sites?? Reference is needed to (examined and adopted in 2016) was the evidence base underpinning these assumptions. cautious and based on available evidence, which was published at the time and deemed to be compliant with guidance on viability.

Need to use more up to date BCIS build costs to reflect increased The Council will continue to review and build costs and cost of materials. Should also include an allowance update evidence on viability, including 11 Taylor Wimpey Build Costs based on scale of site - smaller sites may in practice be subject to information on build costs through BCIS, disproportionately higher build costs relative to larger sites. to underpin the Local Plan.

Support for the approach taken is welcomed - the assumptions made are a Support 20% developer profit for private housing. Abnormals at Residential continuation of the previous approach 5% - Taylor Wimpey recommend more flexibility and contingency 12 Taylor Wimpey Development Cost adopted for the Core Strategy and for CIL, to allow for site-specific variations. Also recommend finance costs Assumptions with some adjustments, and is felt to be are adjusted upwards to 6.5%. appropriate for plan-wide testing purposes.

This response is to the consultation CIL Guidance on the PPG advises early engagement with undertaken whilst the Council, along with developers etc..further consultation is needed on the Newcastle City Council, will continue to 13 Taylor Wimpey Other Matters assumptions as it is not clear how widely the current consultation engage positively with stakeholders on was advertised. the issue of viability at relevant stages in the Local Plan process.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 2b: 2018 Questionnaire on Viability Assumptions (Community Infrastructure Levy and Local Plan)

2018 Questionnaire on Viability Assumptions (Community Infrastructure Levy and Local Plan)

Figure 1: Residential Values

RESIDENTIAL VALUES HIGH HIGH-MID MID LOW-MID LOW Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 AVERAGE RATE NDSS £/m2 (rounded) 3,050 2,550 2,150 1,875 1,700 Size (m2) Sales Values (£/unit)

1 bed flat 45 137,250 114,750 96,750 84,375 76,500

2 bed flat 66 201,300 168,300 141,900 123,750 112,200

3 bed flat 85 259,250 216,750 182,750 159,375 144,500

2 bed house 75 228,750 191,250 161,250 140,625 127,500

3 bed house 96 292,800 244,800 206,400 180,000 163,200

4 bed house 114 347,700 290,700 245,100 213,750 193,800

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

AVERAGE RATE £/m2 3,813 3,188 2,688 2,344 2,344 Assisted Living 50.80 193,700 161,950 136,550 119,075 119,075

Intermediate/ Shared Starter REDUCTION IN GDV FOR AFFORDABLE UNITS Affordable Rent Ownership Homes/DOMV Zone 1 55% 70% 80% Zone 2 55% 70% 80% Zone 3 55% 70% 80% Zone 4 55% 70% 80% Zone 5 55% 70% 80%

Newcastle - http://www.newcastle.gov.uk/sites/drupalncc.newcastle.gov.uk/files/wwwfileroot/planning-and-buildings/planning/residential_values_map1.pdf

Gateshead - http://www.gateshead.gov.uk/DocumentLibrary/Building/PlanningPolicy/CIL/DOCS/Gateshead-Draft-Residential-Value-Band-Map.pdf

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Figure 2

FIGURE 2 BENCHMARK VALUE - RESIDENTIAL

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Zone 1 Zone 2 Zone 3 Zone 4 Zone 5

HIGH HIGH-MID MID LOW-MID LOW

Average Rate £/m2 3,050 2,550 2,150 1,875 1,700

Urban/Suburban £/ha £ 2,100,000 £ 1,600,000 £ 900,000 £ 500,000 £ 200,000

£/acre £ 849,858 £ 647,511 £ 364,225 £ 202,347 £ 80,939

Strategic Sites £/ha £ 530,000 £ 480,000 £ 420,000 £ 380,000 £ 360,000

£/acre £ 214,488 £ 194,253 £ 169,972 £ 153,784 £ 145,690

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Figure 3

BENCHMARK VALUE - COMMERCIAL

High Medium Low Urban/Suburban £/ha £ 2,100,000 £ 900,000 £ 200,000 Non-Urban £/ha @ £ 530,000 £ 420,000 £ 360,000 Industrial £ 235,000 £ 235,000 £ 235,000

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Figure 4

RENTAL AND CAPITAL VALUES AND YIELDS FOR COMMERCIAL SCHEMES

Scheme Type Rental Value £/m2 Low Med High City Centre A1 - Retail Warehouse 110 145 160 Yield 6.50% 6.50% 6.50% A1, A2, A3, A4, A5 - Small Retail 60 88 237 645 overall Yield 8.50% 8.50% 7.50% 7.50% Supermarket 150 195 215 Yield 6.00% 6.00% 6.00% Discount Supermarket 130 130 130 130 Yield 6.75% 6.75% 6.75% 6.75% B1(a) Offices 86 108 161 226 Yield 8.50% 8.50% 7.50% 7.00% B2 Industrial 40 55 70 Yield 10.00% 8.0% 7.50% C1 Hotels 65,000 65,000 90,000 145,000 CV/ROOM Yield C2 Residential Institution 1,200 1,200 2,500 2,500 CV/M2 Yield Student Housing 2,856 3,672 5,916 5,916 MR/ROOM Yield 8.50% 8.50% 7.5% 7.5% Gross Rent Gross to net Yield 1b flat £700 pcm PRS 2b flat £850 pcm 20% 6.5%

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Figure 5

STUDENT HOUSING

EN-SUITE ONLY CITY CENTRE OTHER AREAS GROSS GROSS GROSS RENT/WEEK WEEKS/YEAR RENT/YR/RM WEEKS/YEAR RENT/YR/RM NEWCASTLE UNIVERSITY Undergraduate – Self-catered £ 140 43 £ 6,026 £ 118 40 £ 4,738 £ 132 42 £ 5,557 £ 134 38 £ 5,104 £ 134 40 £ 5,373 Undergraduate – Catered £ 173 38 £ 6,287 Postgraduate £ 116 50 £ 5,800 £ 128 51 £ 6,544 £ 134 51 £ 6,870 NORTHUMBRIA UNIVERSITY £ 124 43 £ 5,343 £ 124 43 £ 5,343 £ 126 43 £ 5,418 £ 118 43 £ 5,074 AVERAGE GROSS YEARLY RENT/RM £ 5,829 £ 5,041 EXPENDITURE ALL INC. FM CHARGE @ 15% £ 645 15% £ 525

NET AVERAGE RENTAL INCOME/RM £ 3,656 £ 2,974 31

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

SAY £ 3,660 £ 2,980

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Figure 6

TYPICAL RENT FREE PERIODS

Scheme Type Months A1 - Retail Warehouse 9 A1, A2, A3, A4, A5 - Small Retail 12 Supermarket 15 B1(a) Offices 10 B2 Industrial 10 C1 Hotels 0 C2 Residential Institution 0 Student Housing 0

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Figure 7

BUILD COST DATA (BCIS MEDIAN Q2 2018, LOCATION INDEX 0.90 - OTHER THAN AS STATED

BCIS Build Cost Use Class Property Type (£/sq.m.) Gross to Net C3 - Houses (one off) HIGH MEDIAN 1,324 100% HIGH MID 1,211 100% MID LOWER QTLE 1,097 100% LOW MID 1,097 100% LOW 1,097 100% C3 - Houses - Mixed Developments HIGH MEDIAN 1,109 100% HIGH MID 1,046 100% MID LOWER QTLE 982 100% BASED ON LOW MID 982 100% RESIDENTIAL LOW 982 100% Q2 2018, LOC C3 - Flats - City Centre 6 storey+ flats 1,314 83% INDEX 0.90 A1 - Shops Retail Warehouse (non-food) 770 90% A1 - Shops - Supermarket Supermarket 1,401 95% A1, A2, A3, A4, A5 - Small Retail Convenience Store - not in City Centre 982 90% City Centre 9982 78% B1(a) Offices Urban Core. 3-5 storeys, air conditioning 1,648 80% Neighbourhoods. Offices (Generally) 1,423 85% B1 Light Industrial B2, B8 - Industrial Industrial Warehouse (Purpose Built) 581 100% C1 - Hotel City Centre & High 2,169 100% Hotel - other zones 1,816 100% C3 – Assisted Living Nursing Home 1,314 83% Shared Accommodation Student Housing 1,612 100% C3 – PRS 1,314 EC Harris Cost

Estimates C3 – M4(2) 2b house £1,155 3b house £1,153 4b house £1,152 33

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Figure 8

EXTERNALS ALLOWANCE Scheme Type Externals Allowance - Percentage of Base Build Cost Residential 10% Retail warehouse 15% Retail A1 to A5 10% Supermarkets 15% Offices (in town) 5% Offices (out of town) 15% Industrial 10% Hotels 5% Student accommodation 5%

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Figure 9

DEVELOPMENT COSTS - FEES, FINANCE & PROFIT - RESIDENTIAL

Item Description Professional Fees 10% of build costs including planning, building regs, insurances etc Site Acquisition Fees 1.00% of purchase price - Agents Fees 0.75% of purchase price - Legal Fees Prevalent rate of purchase Price - SDLT Finance 6.5% per annum Marketing Costs 3.0% sales fees £600 per unit legal fees Developer Profit on GDV 6% Affordable Housing 20% Private Housing s.106 2,000 Per Unit Urban Sites 4,000 Per Unit Non-Urban Sites Abnormals Allowance £150,000 Per net Ha City Centre Abnormals Allowance £300,000 Per net Ha Contingency 5% on build costs Externals 10% on build costs Sales Timings Scheme No.'s First Sale Sales per annum Sales/Qtr I unit scheme 9 25 6.25 2-25 unit schemes 9 25 6.25 50 unit scheme 12 30 7.50 100 unit scheme 12 35 8.75 250 unit scheme 12 50 12.50

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Finance Arrangement Fee 0.10% of cost Marketing Costs 1.00% sales fees where applicable 10% letting fees (percentage of annual income) Legals on Lettings 5.00% percentage of annual income Legals on Sale 0.25% percentage GDV on costs (save shared on costs (shared Developer Profit acc.) 15% acc.) 15% s.106 0 EPC/m2 £ 0.50 Abnormals Allowance £150,000 per net ha City Centre Abnormals Allowance £300,000 per net ha Contingency 5% on build costs Externals 11.25% on build costs to 15% on build costs

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Figure 10

BUILD PERIODS (MONTHS) - RESIDENTIAL Scheme Type Build Period I unit scheme 9 2- 25 unit schemes 12 50 unit scheme 24 100 unit scheme 36

BUILD PERIOD (MONTHS) - COMMERCIAL Scheme Type Build Period Retail warehouse 9 Convenience store 12 36

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Supermarket 12 Office building - centre 14 Office building - out of town business park 14 Industrial warehouse 6 Hotel 16 Nursing home 16 Student housing 16

Do you agree with these assumptions? Yes No

If NO, please justify your position by providing evidence below

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 2b: 2018 Viability Questionnaire Response Summaries

Comment Respondent Issue Summary of Comment Response Number

1 Barratt David Wilson Abnormal costs The response supports the abnormals allowance but it should Abnormal costs are 'unknowns' therefore there is no right or be higher than 150k per hectare. Sites listed from the NE vary wrong answer on this. However, in line with the PPG, if the from £263,493 to £911,767 per net hectare. Majority of the abnormals are increased this would simply result in a lower BLV, so sites fall between £450,000 - £550,000. BDW suggest a 536k the impact on the overall viability outcome would largely be per net hectare abnormal cost. mitigated. In other words, it shouldn't matter greatly to the overall viability outcome if the abnormals are raised or lowered as this would be counter balanced by an adjustment in the BLV

2 Barratt David Wilson Affordable Transfer values and affordable rents don’t fluctuate as much Noted. It is true that the % approach has its limitations. Agreed Housing across value zones as much. Using percentages for open that there should be some reduction in the % for the higher value market value for affordable rent is not realistic as it becomes areas. May be worth a sensitivity test to cover this unaffordable for tenants and RP's wont charge it Transfer values recommended: • AR – Low market areas: £65k for a 2 bed, £75k for a 3 bed, • AR – Mid market areas: £80k for a 2 bed, £90k for a 3 bed, • AR – High and highest market areas: £85k for a 2 bed, £95k for a 3 bed. Viability inputs should reflect the policies of Authorities within the North East, BDW indicates most of its discounted sales are at 70% rather than 80% of value due LA preference. Barratt willing to support this input if reflected in policy and/or future s106 discussions.

3 Barratt David Wilson BLV's NCC and GMBC have requirement to show that sufficient land Rationale regarding BLVs is explained in some detail within the will come forward, however BLV calculation has not included report. (See Section 6.18) the coverage so cannot be reviewed by developers. At present there is concern that policy burden will dampen willingness of landowners to sell.

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4 Barratt David Wilson Build Cost data Median Cost should be applied, builders don’t change Rationale regarding BCIS is explained in some detail within the specification to extent identified. Volume Housebuilders tend report. (See Section 6) to build to standard specification. Use of BCIS data from Q2 2018 mixed developments (£1,109/sq.m and 982 sqm), the June 2016 BCIS were higher in both Newcastle and Gateshead and should be included.

5 Barratt David Wilson Build Periods Build period should reflect the relevant sales rates following a Discussed in detail in the report (See Section 7.16) suitable lead in time. When including a 35 sales per anum 36 months for a site of 100 units would not be of sufficient time for the site to be completed.

6 Barratt David Wilson Contingency Supports the inclusion but believes no differential should be Discussed in detail in the report (See section 6.11- 6.13) made between green and brown field sites.

7 Barratt David Wilson Developer Profit Ran at 20% of gross development value regardless of Rationale on profit explained in the report (see Section 6.17) affordable housing provision.

8 Barratt David Wilson Development Supports the inputs for professional fees, site acquisition fees Noted. Costs and finance costs.

9 Barratt David Wilson Figure 1 - EPC Concerns were raised with the footprint inputs, stating that Use of EPC discussed in detail in the report (See Section 6.9.3) measurements the EPC reflects the NSA rather than the GIA, which is a smaller build area. Consequently this over inflates the revenue per square metre while undervaluing the build cost.

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10 Barratt David Wilson Externals External costs are higher than the 10% included within the 1. This depends on what is included within the external cost Allowance build cost (plot and preliminaries used by BDW). Provides 5 allowance. The 10% is intended to cover standard externals, not greenfield sites with externals believed to contribute to abnormal costs. 2. Prelims are already factored into between 27.26% - 38.28% the BCIS rate, therefore including them with externals would reflect double-counting 3. The 10% allowance has been adopted to ensure consistency with previous viability testing, which were approved following Examination processes. 4. The 10% external allowance should also be considered in conjunction with the professional fees and contingency (which total 25%). The professional fees could be argued to be too high. However, overall 25% is considered to be reasonable.

11 Barratt David Wilson Marketing Costs Marketing allowance is low citing Durham allowing 3%. The evidence identified (including an in-house database of viability Suggests that council estate departments are consulted. appraisals) supports the adopted approach and is detailed in the report (see section 6.14)

12 Barratt David Wilson NDSS and land Concerned that requiring the NDSS would lower the price The July 2018 PPG is clear that the price paid for land is not a cost developers are willing to pay for land due to increased justification for a site being unviable. Therefore, if a developer / development cost and decreasing achievable density caused housebuilder over pays for a site (because, for example, they have by the new standards. Supressed land values would result in a not appropriately factored in NDSS into their considerations) then lowered land supply as less landowners are willing to sell land that is not grounds to reduce planning policy contributions. This at prices that don’t impede site viability. Expressed further should be made clear to landowners therefore the market will concerns a minimum land value of £200k per acre in lower have to adjust in terms of land price expectations quartile areas £250,000 per acre in mid areas and £350,000 in high-mid areas for landowners to be willing to sell, BDW believe the NDSS may push some land below these thresholds. Impacts long term planning of the builders by creating uncertainty over the land market, particularly as most land is secured 'just in time' and is not land banked. Land with options often has a minimum sale price which might not be viable for developers when considering the higher costs.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

13 Barratt David Wilson S106 S106 data included for developments ranges from no Rationale explained in the report (See section 7.5) contribution to £12,400 per unit. It’s not clear from the council what constitutes an urban or non-urban site and why the s106 varies between them. Barratt averages suggests s106 requirement is closer to £5,794

14 Barratt David Wilson Sales Rates Supports 12 month lead in time and 35 units per anum for Rationale explained in the report (See Section 6.16) sites of 100 units plus for high and high mid areas. An adjustment should be made for mid and low value sites to between 30 and 25 units per anum.

15 Barratt David Wilson Sales Values - Appreciates simplicity required to keep number of house types Evidence referenced in the report. Also approach of using the Land Figure 1 of smaller, rounding inflates sales values beyond market Registry / EPC data detailed and justified. (See Section 6) Questionaire. thresholds. Achieved values lower in North Gosforth (high area) by 30k per house on 2 and 3 beds, slightly higher for 4 beds. It is accepted that these are smaller than the NDSS sizes but are higher per m2 accounting for some of the difference. Sales values for 4 beds are similar to the Figure 1 values however due to being larger the 4 beds achieve a much lower price per m2, while consistent with other values 2 and 3 beds are also lower per m2 than the £2,550. An even starker pattern is seen in the low-mid value area where values per m2 are 15%-23% lower than in the figure 1.

16 Barratt David Wilson Sales Values - Values at Dunston Gateway are lower in the average sale Discussed in the report (See Section 7.1). However, Neil Milburn Diminishing prices due to having a smaller footprint than the NDSS, does acknowledge that NDSS would not worsen viability returns. however the price per m2 is similar to the proposed price in Figure 1. BDW indicate sales values are unlikely to remain the same if built to an NDSS standard due to diminishing returns for larger floorspaces.

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17 Barratt David Wilson Figure 1 NDSS acknowledges the need to keep the number of typologies to a Discussed in the report (See Section 7.1) Floorspace Figures minimum for simplicity, BDW indicate rounding areas inflates sales values beyond market thresholds in certain areas.

18 Barratt David Wilson External Reports Reports attached authored from N L Jones a chartered Evidence provided dates back to 2009 (pre NPPF / PPG and also pre property surveyor, as a support for the planning inspectorate Harman Review), therefore outdated. The concerns raised in these for Eden Valley Council and for Barking and Dagenham 2009 reports are dealt with in the latest NPPF / PPG, which states Councils core strategy evidence base respectively. The focus of clearly how land value should be dealt with for the purposes of the two reports are the effect that their affordable housing plan making. provision required within their core strategy were considered flawed by the technical expert due to their potential effect on land values and lowering the supply of land. A key point in both reports is the identification of what land value it will require to continue land to continue coming forward to the development market, to ensure the plan obligations are deliverable. Attention was drawn to a passage stating 'unless and owners can be persuaded that it is worth their while allowing their site to be redeveloped then they will not make the decision to allow their land to be brought forward and the development land market will not function.

19 Home Builders Federation Abnormal Costs Supports inclusion of abnormals, though would like to see how Abnormal costs are 'unknowns' therefore there is no right or this was determined. Evidence from members has suggested wrong answer on this. However, in line with the PPG, if the the abnormals allowance should be higher. abnormals are increased this would simply result in a lower BLV, so the impact on the overall viability outcome would largely be mitigated. In other words, it shouldn't matter greatly to the overall viability outcome if the abnormals are raised or lowered as this would be counter balanced by an adjustment in the BLV

20 Home Builders Federation Affordable Would like further information to clarify how the reduction of This is explained in the report. (See Section 6.10) Housing GDV GDV has been calculated and if consideration has been given to consistent levels of GDV is seen in each area or house size.

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21 Home Builders Federation BLV's More clarity required on BLV methodology, specifically if the Rationale regarding BLVs is explained in some detail within the council has used policy compliant sites as examples to gather report. (See Section 6.18) the information. Therefore, HBF cannot agree with assumptions in Figure 2 without more evidence. HBF suggests caution should be allowed for BLV's as sufficient land values must be attained to encourage land to be made available.

22 Home Builders Federation Build costs Supports use of BCIS data, however queries why different Rationale regarding BCIS is explained in some detail within the build costs have been applied across different value zones. report. (See Section 6) Without further justification the HBF suggests that a cautious approach is taken and the BCIS median cost is applied across all value zones.

23 Home Builders Federation Build Periods Build periods should allow for a reasonable lead in period and Discussed in detail in the report (See Section 7.16) build out rate of 35 units per year. Cannot support build period assumptions and more information should be required.

24 Home Builders Federation Concerns over Would like to see more evidence and/or explanations for the Discussed in detail in the report extent of evidence assumptions used within the councils’ own models and this provided lack of data has made responding to the assumptions difficult. The opportunity to comment on the detail with the assumptions would be welcomed by the HBF

25 Home Builders Federation Contingency Supports the inclusion of contingency allowance Discussed in detail in the report (See section 6.11- 6.13)

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26 Home Builders Federation Externals Supports the inclusion of an externals allowance over and 1. This depends on what is included within the external cost Allowance above base costs, though indicates that this should be higher. allowance. The 10% is intended to cover standard externals, not HBF members have provided evidence that higher levels of abnormal costs. 2. Prelims are already factored into the BCIS external allowance are required. rate, therefore including them with externals would reflect double- counting 3. The 10% allowance has been adopted to ensure consistency with previous viability testing, which were approved following Examination processes. 4. The 10% external allowance should also be considered in conjunction with the professional fees and contingency (which total 25%). The professional fees could be argued to be too high. However, overall 25% is considered to be reasonable.

27 Home Builders Federation Figure 1 NDSS Questions the appropriateness of using averages for NDSS Was explained in the PowerPoint and the approach is also detailed Floorspace Figures requirements, believes the councils should further explain why in the report this approach was used and sees it as inappropriate for use of viability for the NDSS. A second point made was that the figures used don't account for full NDSS technical requirements including storage, which should be considered as part of viability testing. The HBF recommends that a cautious approach for considering NDSS viability should be undertaken, taking account of the full implications of the NDSS.

28 Home Builders Federation Residential Value Disagrees with the residential value assumptions made in Approach is explained in detail within the report Zones figure 1, and has indicated it's members have made representations to the HBF that the figures are higher than they are selling at within the values areas. The level of evidence presented has also been questioned the likelihood that others could support these assumptions. A more cautious approach with a lower sales value would be more appropriate, this will have a knock-on effect to average sales value rate per m2. Requests greater detail is required on residential value zones, consequently this makes it not possible to judge if NDSS averages are appropriate.

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29 Home Builders Federation s106 Unclear where the source of the councils base information for Rationale explained in the report (See section 7.5) S106 from. HBF members have indicated that s106 payments are significantly higher than the £2,000 and £4,000 assumptions used by the council. More clarity on which areas are urban and non-urban in nature for S106.

30 Leazes Homes BCIS cost BCIS Cost assumptions are considered low for Leazes homes Rationale regarding BCIS is explained in some detail within the assumptions for their build out highlighting abnormals and/ or exclusions in report. (See Section 6) as the likely means behind this. Leazes homes acknowledges this is likely due to the high level of reliance on Brownfield sites.

31 Northumbria Police No comments to make from a policing perspective. Noted

32 Persimmon Abnormal Costs Supports inclusion of abnormals however believes £150,000 is Abnormal costs are 'unknowns' therefore there is no right or too low. There should also be no reduction for abnormals for wrong answer on this. However, in line with the PPG, if the greenfield sites. Dunston Hill a greenfield site is said to have abnormals are increased this would simply result in a lower BLV, so abnormal costs for ecology and S278 equates to £290,000 per the impact on the overall viability outcome would largely be net ha. mitigated. In other words, it shouldn't matter greatly to the overall viability outcome if the abnormals are raised or lowered as this would be counter balanced by an adjustment in the BLV

33 Persimmon Affordable Fixed percentages for open market value for affordable rent is Noted. It is true that the % approach has its limitations. Agreed Housing considered unsuitable as values are not in a fixed proportion that there should be some reduction in the % for the higher value to sales revenue. Alternative suggested as using transfer areas. May be worth a sensitivity test to cover this values of 65k for 2 beds and 75k for 3 beds in Low/Mid market areas and 75k for 2 beds and 85k for a 3 bed.

34 Persimmon BCIS Supports the use of up-to date BCIS information Noted.

35 Persimmon Clarification of Clarification over what is entailed within externals and what is Discussed in detail in the report (See Section 6) terms included as abnormals within BCIS. Coverage used for the housing density per NDA

36 Persimmon Contingency Supports 5% contingency allowance, however no differential Discussed in detail in the report (See section 6.11- 6.13) should be applied to Greenfield sites.

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37 Persimmon Developer Profit Should be 20% of gross development value regardless of Rationale on profit explained in the report (see Section 6.17) affordable housing provision.

38 Persimmon Figure 1 - Clarification requested NSA or GIA was used to calculate sales Use of EPC discussed in detail in the report (See Section 6.9.3) Floorspace revenue per sqft/sqm. Persimmon believe the GIA has been measurements used.

40 Persimmon Extent of evidence Evidence presented by the councils assumption questionnaire Evidence / general detail is provided through the report is lacking in depth, important that detail is included due to sensitivity of viability.

41 Persimmon Externals Support the use of externals allowance on top of base build 1. This depends on what is included within the external cost Allowance costs, but that the external allowance should be higher. allowance. The 10% is intended to cover standard externals, not Externals at Dunston Hill site will be in excess of 20% above abnormal costs. 2. Prelims are already factored into the BCIS BCIS Build costs. rate, therefore including them with externals would reflect double- counting 3. The 10% allowance has been adopted to ensure consistency with previous viability testing, which were approved following Examination processes. 4. The 10% external allowance should also be considered in conjunction with the professional fees and contingency (which total 25%). The professional fees could be argued to be too high. However, overall 25% is considered to be reasonable.

42 Persimmon Fees and Finance Support for professional fees, site acquisition fees and finance Noted costs.

43 Persimmon Sales Values High Mid area development at Upper Callerton is closer to The issue here may be that Upper Callerton is not a high-mid area, £200 per square foot than £236. Competition of other new but actually a mid area location. The evidence I have in NE5 also builds around Newcastle could supress price further points closer to £200 psf

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 2c: 2018 Viability Assumption Responses Received at Regulation 19 and Additional Clarification Comments

Comment Respondent Issue Summary of Comment Response Number

1 Barratt David Wilson Dwelling size Average house sizes are 15% lower than Barratts average. Previous viability testing (e.g. CIL) included average dwelling sizes. BDW want Council to review this allowance. The Councils don’t The allowances were accepted through an Inspection process. The state whether this is GIA for each dwelling. The Councils average sizes of dwellings are broadly consistent with viability should not dictate housing mix across the city. Greater studies undertaken by other Local Authorities. The average sizes flexibility is needed in the testing. were also consistent with sales data from the area. Barratts may choose to construct larger dwellings, however for the purposes of the viability testing we have to assess the average dwelling size for an area, which is what has been undertaken. Notwithstanding this, we have also tested schemes based on the NDSS average rates, which include increased dwelling sizes for 2 and 3 bed housing, so the modelling does also consider increased dwelling sizes.

2 Barratt David Wilson Dwelling size Doesn’t state whether market values are based on GIA. BDW The average size of dwellings is based on the ‘total floor area’ as calculation want to ensure this is based on GIA, which should include used when assessing a property for the purposes of an Energy internal and detached garages. Performance Certificate.

3 Barratt David Wilson Dwelling mix BDW consider it is unnecessary and inflexible to seek to The Council is not dictating dwelling mix, but instead assessing control the housing mix, since it would mean the housing average mixes given the scale of each typology. The PPG recognises market would be unable to adjust to market movements. The that viability testing cannot consider all permutations associated Councils should ensure greater flexibility within the housing with development (including mix) and therefore average mix policy to meet local, site specific need and ensure viability. considerations are deemed appropriate for the purposes of the testing.

4 Barratt David Wilson Breakdown of Argue for a breakdown of externals, contingency and A breakdown of theses allowances is already included (section externals, professional fees (which has been included at 25%). Urge the 6.12). This was previously accepted through examination. contingency & Councils to allow for 5% contingency, 15% externals and 10% professional fees professional fees. If using low BCIS, externals should be at 40%. If using BCIS median, the lower figure of 15% would be appropriate.

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5 Barratt David Wilson BCIS Median Argue that BCIS median should be used across the whole area The BCIS is a useful database, but it has its limitations. As discussed and all of the site types. in the report the majority of the data is derived from small schemes delivered by local or relatively small contractors. These types of builders are unable to make the savings (on labour and materials) that a national volume house builder can (who would most likely implement schemes of 50 or more dwellings). It is also the case that volume housebuilders do not contribute to the RICS data. For this reason the figures can be regarded as being inherently high (when applied to larger scale schemes). The BCIS recognises this (article from Oct 2016 as referred to in the report). There are appeal decisions where figures lower than the median are accepted. Other Local Authorities also depart from the BCIS median in their own viability studies. That all said, BCIS median is applied to higher value areas (where it is recognised the specification of the product would be enhanced). The approach was previously accepted through examination.

6 Barratt David Wilson Dwelling size and Average house sizes used are smaller than BDW’s standard For the purposes of an area-wide study the assessor is looking to garages housetypes (15% smaller on average). BDW would support the establish appropriate average sales values. It is accepted that the use of GIA measurements. sales data collected through the Land Registry will reflect a variety of different dwelling types, for example some of dwellings that form the date will comprise garages and some of which will not. The rates per sq m data will therefore show a range of figures to reflect these variations. However, we have not looked to adopt values at the top end of the range, but instead looked to arrive at average values, which mitigates these variations in the data. In other words, it would not be appropriate to assume that all dwellings have garages and likewise it would not be appropriate to assume that all dwellings don’t have garages. By averaging the Land Registry data we already allow for the fact that some dwellings have garages and some do not.

7 Barratt David Wilson Abnormals Consider abnormal cost allowance to be too low (£150,000 per Any allowance for abnormals is arbitrary as this will vary net Ha, increased to £300,000 per net Ha in city centre significantly from case to case. That said, we consider it locations). Argue for £400,000 per net Ha in greenfield, appropriate to include ‘something’ for the abnormal costs. As per £600,000 per net Ha in brownfield. the PPG, though, there is a relationship between the benchmark land value and the abnormals. Broadly, if abnormals increases this reduces the benchmark land value and vice versa. Therefore, any increase in abnormal costs allowance would be broadly offset by reductions in the benchmark land value.

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8 Barratt David Wilson Urban/ non-urban Question why there is a difference between urban and non- This difference was previously accepted through examination. urban BLV’s. Non-urban will have a lower existing use value, therefore the assessment approach is different.

9 Barratt David Wilson Benchmark land BDW argue £200,000 per Ha is too low in low value areas. Also This built on previous figures accepted through examination. It is values argue £2.1million per Ha is too high in high value areas. These was considered important to ensure, where possible, consistency need to be reconsidered. in the testing. That said, the approach adhered to the PPG, which clearly sets out a requirement for determining the BLV based on the ‘existing use value + premium’ method. It is noted that £2.1million per Ha may be too high.

10 Barratt David Wilson Developer profit BDW suggest 20% profit should be applied to market value and PPG recognises that profit can fluctuate and suggests a range of affordable. 15% to 20% on revenue. The allowances assumed in the testing falls within this range. The evidence identified suggests profit fluctuates and is not set at 20%. Affordable dwellings are typically transferred in bulk to a single Registered Provider, with the deal having been agreed prior to construction having commenced. The risk associated with building these dwellings is therefore significantly reduced when compared to speculatively releasing market value dwellings. It therefore is reasonable to assume that each carries a different risk profile (and therefore attracts a different level of profit).

11 Barratt David Wilson Marketing BDW suggest 6% for marketing. The evidence identified and discussed in the report shows an allowance of 3% on revenue is reasonable.

12 Barratt David Wilson Planning BDW say that “no allowance appears to have been made for Section 7.5 refers to S106 and CIL payments. The S106 allowances obligations planning obligations, S106 and CIL”. range from £2,000 to £4,000 per dwelling (for the reasons set out in the report). CIL allowances have been adopted in line with the current CIL rates for each authority.

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Additional Clarification Comments Post Consultation Period (Regulation 19) 13 Home Builders Federation Sales values It is not clear whether the sales values that would be Approach is explained in detail within the report associated with the proposed £/sqm would be realistic. There Sales values and build costs have been separately identified. does not appear to have been any assessment of the realism Affordability has been discussed in the report. Realism is reflected of sales or availability of mortgages for the income levels in the through the sales evidence. City in relation to these prices. The report assumes that all rises in build costs will be passed onto purchasers.

Land Registry does not take into account incentives. Practice Guide 7 of Land Registry. Section 5.1 is entitled “Discounts and incentives”. This states: “Often developers offer discounts and HBF encourage the Council to take a more cautious approach incentives to prospective buyers, in this case we enter the net in relation to sales values. (lower) price paid in the register. If we are unable to identify the net price, we will request this. The reason for this is that entry of the pre-discount price may be misleading”.

14 Home Builders Federation Plot construction BCIS does not include abnormals and externals. A breakdown of theses allowances is already included (section costs Plots and prelims are unlikely to reduce in scale or cost (e.g. 6.12). This was previously accepted through examination. concrete wont be cheaper in Elswick than Gosforth). Small percentage changes in build costs can have a big impact Additional allowances are included for externals and abnormals. on viability. Variations in build costs across value locations reflects different specification. This approach has previously been accepted by an Caution should be exercised when suggesting that the BCIS cost is the equivalent of the plot cost. Inspector. Agreed that fluctuations in build costs will impact on viability outcomes.

15 Home Builders Federation Externals The report does not appear to provide any evidence in relation Approach is explained in detail within the report. to how the percentage cost has been calculated and whether For consistency the external allowance follows previous area wide it is reasonable in relation to the costs associated with the testing, accepted through examination. The rate adopted is provision of the above infrastructure, or any costs considered reasonable when compared alongside contingency and comparisons to ensure these costs are realistic and professional fees allowances (as explained in the report). appropriately related to any in-house requirements for highway or street lighting or external requirements for Paragraph 6.12 reviews previous assumptions and considers that infrastructure connections. whilst 15% might be more appropriate, overall 25% for externals, contingency and professional fees remain valid. HBF does not consider that it is able to support a 10% allowance without further evidence to justify this figure.

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16 Home Builders Federation Abnormals HBF would suggest that given the huge range of abnormal It is accepted that abnormals vary from site to site. However, it was infrastructure costs that need to be accounted for over and felt that some level of abnormal costs should be factored in, as a above plot costs and external costs on a site specific basis that high proportion of sites do attract abnormals. That said, the impact any attempt to apply standard rates whilst doing a plan wide of abnormals is offset to some degree by benchmark land values, typology viability work should be treated with caution. so if we were to increase abnormals we would have to reduce the BLV’s, which would serve to mostly offset the impact on the viability outcome.

17 Home Builders Federation Build/ sales rates It would be beneficial to have further information as to how Build / sales rates are discussed in section 6.16 of the report. these build periods were determined. These should allow for a Construction lead in periods range from 3 to 12 months dependent reasonable lead in period followed by a suitable build rate. on the scale of the project (15 dwellings 3 months, up to 12 months for 100 dwellings).

18 Home Builders Federation Benchmark land Recommend the Councils take a cautious approach to Approach is explained in detail within the report values identifying the BLV as if it is not correct it could lead to a disincentive for owners to bring land to the market.

19 Story Homes Sales values It is not clear whether the sales values that would be Approach is explained in detail within the report associated with the proposed £/sqm would be realistic. There Sales values and build costs have been separately identified. does not appear to have been any assessment of the realism Affordability has been discussed in the report. Realism is reflected of sales or availability of mortgages for the income levels in the through the sales evidence. City in relation to these prices. The report assumes that all rises in build costs will be passed onto purchasers.

20 Story Homes Plot construction Caution should be exercised when suggesting that the BCIS A breakdown of theses allowances is already included (section costs cost is the equivalent of the plot cost. It does not account for 6.12). This was previously accepted through examination. all the other works required such as drives, paths, fencing, walls, gardens/plot landscaping, connections and detached Additional allowances are included for externals and abnormals. garages or any costs due to complex ground or level Variations in build costs across value locations reflects different conditions. specification. This approach has previously been accepted by an Inspector.

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21 Story Homes Externals The new allowance of 15% for externals does not provide any Approach is explained in detail within the report. evidence in relation to how the percentage cost has been For consistency the external allowance follows previous area wide calculated and whether it is reasonable in relation to the costs testing, accepted through examination. The rate adopted is associated with the provisions of externals. considered reasonable when compared alongside contingency and professional fees allowances (as explained in the report). Consideration needs to be given to the composition of the proposed type of sites coming forwards in Newcastle with the Paragraph 6.12 reviews previous assumptions and considers that greatest proportion of delivery being likely from larger sites whilst 15% might be more appropriate, overall 25% for externals, with demonstrable greater external costs. contingency and professional fees remain valid.

22 Story Homes Abnormals Suggest that given the huge range of abnormal infrastructure Any allowance for abnormals is arbitrary as this will vary costs that need to be accounted for over and above plot costs significantly from case to case. That said, we consider it and external costs on a site specific basis that any attempt to appropriate to include ‘something’ for the abnormal costs. As per apply standard rates whilst doing a plan wide typology viability the PPG, though, there is a relationship between the benchmark work should be treated with caution. land value and the abnormals. Broadly, if abnormals increases this reduces the benchmark land value and vice versa. Therefore, any increase in abnormal costs allowance would be broadly offset by reductions in the benchmark land value.

23 Story Homes Build/ sales rates It would be beneficial to have further information as to how Build / sales rates are discussed in section 6.16 of the report. these build periods were determined. These should allow for a Construction lead in periods range from 3 to 12 months dependent reasonable lead in period followed by a suitable build rate. on the scale of the project (15 dwellings 3 months, up to 12 months for 100 dwellings). Care also needs to be had to imply that sites with greater numbers than 100 dwellings are ‘strategic sites’ where multiple outlets are likely. Would be useful to understand if this is the assumption the Council is making and the evidence for this threshold.

24 Story Homes Benchmark land Recommend the Councils take a cautious approach to Approach is explained in detail within the report values identifying the BLV as if it is not correct it could lead to a disincentive for owners to bring land to the market.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

25 Barratt David Wilson Sales values It is also not clear whether the sales values that would be Approach is explained in detail within the report associated with the proposed £/sqm would be realistic. There Sales values and build costs have been separately identified. does not appear to have been any assessment of the realism Affordability has been discussed in the report. Realism is reflected of sales or availability of mortgages for the income levels in the through the sales evidence. City in relation to these prices.

BDW would refer the Council back to work, provided to Newcastle Council, in July 2018, in regard to revenue. This demonstrates the continuing inaccuracy of the revenue Practice Guide 7 of Land Registry. Section 5.1 is entitled “Discounts statistics relied upon. and incentives”. This states: “Often developers offer discounts and incentives to prospective buyers, in this case we enter the net (lower) price paid in the register. If we are unable to identify the net price, we will request this. The reason for this is that entry of the pre-discount price may be misleading”.

26 Barratt David Wilson Plot construction BDW would urge the Council to use median BCIS across the A breakdown of theses allowances is already included (section costs whole area and across, all sites, whilst also carrying out 6.12). This was previously accepted through examination. sensitivity testing. We would also urge the Council to take a more cautious approach when suggesting that BCIS is Additional allowances are included for externals and abnormals. equivalent to plot cost. We would suggest an element of Variations in build costs across value locations reflects different sensitivity testing, particularly in light of upcoming specification. This approach has previously been accepted by an uncertainties surrounding Brexit. Inspector. Agreed that fluctuations in build costs will impact on viability outcomes.

27 Barratt David Wilson Externals BDW state that the allowance of 10% for externals does not A breakdown of theses allowances is already included (section provide any evidence in relation to how the percentage cost 6.12). This was previously accepted through examination. has been calculated and whether it is reasonable in relation to the costs associated with the provisions of externals. BDW would urge the Councils to allow for 15% externals. The report should also include evidence in relation to how the percentage cost has been calculated and include cost comparisons.

28 Barratt David Wilson Fees & We would urge the Councils to allow for 5% contingency, 15% A breakdown of theses allowances is already included (section contingency externals and 10% professional fees. 6.12). This was previously accepted through examination.

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29 Barratt David Wilson Abnormals Consider abnormal cost allowance to be too low (£150,000 per Any allowance for abnormals is arbitrary as this will vary net Ha, increased to £300,000 per net Ha in city centre significantly from case to case. That said, we consider it locations). Argue for £400,000 per net Ha in greenfield, appropriate to include ‘something’ for the abnormal costs. As per £600,000 per net Ha in brownfield. the PPG, though, there is a relationship between the benchmark land value and the abnormals. Broadly, if abnormals increases this Councils must recognise abnormals can include a variety of reduces the benchmark land value and vice versa. Therefore, any costs, such as remediation works, decontamination, increase in abnormal costs allowance would be broadly offset by demolition, enhanced foundation solutions, flood mitigation reductions in the benchmark land value. works, ‘opening’ infrastructure works etc. Caution should be exercised over the attempt to apply standard rates whilst doing a plan wide typology viability work.

30 Barratt David Wilson Build/ sales rates Build periods must be realistic and allow for a reasonable lead Build / sales rates are discussed in section 6.16 of the report. in period followed by a suitable build rate. Construction lead in periods range from 3 to 12 months dependent on the scale of the project (15 dwellings 3 months, up to 12 months for 100 dwellings).

31 Barratt David Wilson Benchmark land BDW urge the Councils to reconsider the recommended BLV Approach is explained in detail within the report values assumptions in low value urban areas and high value urban areas, and consider the disparity between urban and non- urban, and consider the disparity between urban and non- urban areas, particularly focusing on the low BLV assumptions being suggested in non-urban areas. BDW would urge the Council to consult with landowners to determine what value they would sell their sites for. This must be understood to ensure land still comes to the market.

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Appendix 2: Table 2D 2018 Viability Representations and Responses Received at Regulation 19 Respondent Name Summary of Regulation 20 Representations to Response Newcastle and Gateshead local plans ( DAP and MSGP) (either or both) ACCESSIBLE AND ADAPTABLE Policies (Newcastle DAP DM 6 & Gateshead MSGP11)

Bellway Concerned about impact of Accessible & Adaptable on The Viability report assesses the cost for implementing M4(2) viability. Don’t think the implications have been standards (taken from the Government’s policy impact assessment) considered in detail. with cumulative plan costs including s106 and CIL liabilities.

The costs analysis is detailed in the report (chapter 7). The costs for meeting M4 (2) are relatively low (£2,000 per dwelling), however meeting M4 (3) is a significant cost.

For M4 (2), through sensitivity testing, we have tested a variety of different mixes including 10%, 25%, 50% and 90%. This is considered to be a rigorous, detailed assessment. From this analysis we conclude that a 25% policy is not sufficient to undermine scheme viability, however if this increases to 50% and above it would risk undermining scheme viability. For M4 (3) various iterations have been assessed. From this we conclude that even just applying M4 (3) standard to 5% this could undermine viability.

Standards should only be used if shown to be viable. The testing shows that by applying 25% M4 (2) it does not change When 9 out of the 24 modelled scenarios fail (37.5%) when the viability outcome of any schemes. In other words, all of the tested at the 25% requirement – this is even more stark schemes that were viable in the base appraisal testing remain viable when you consider the impact on brownfield sites in low if the policy is brought in. Overall the plan costs are considered value areas marginal and would not therefore undermine the ‘delivery of the plan’ (NPPF, para. 34).

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The base appraisal shows weak viability outcomes. However, the sensitivity analysis shows how schemes can be viable in these types of locations (particularly the low cost developer model). Viability is a holistic exercise where all sensitivity testing should be considered before a final conclusion is reached. The results of the base appraisals have not therefore been taken in isolation, but considered alongside the sensitivity analysis. Furthermore, the Council is conscious that schemes are being brought forward in low and low-mid value locations, suggesting viability can be attained in more challenging market areas. The testing undertaken shows the imposition of this policy has a relatively minor impact (in financial terms). Where schemes are shown to be unviable this is not because of this policy, it is due to other factors.

Story Homes The Council’s assertion that the NDSS can be viably The Viability report assesses the cost for implementing M4(2) provided and would not undermine overall plan standards (taken from the Government’s policy impact assessment) deliverability is not considered to be justified. with cumulative plan costs including s106 and CIL liabilities.

The HBF and the development industry retain concerns The testing shows that by applying 25% M4 (2) it does not change about the assumptions this position is based on in the the viability outcome of any schemes. In other words, all of the Council’s Viability Report, including in respect of a schemes that were viable in the base appraisal testing remain viable number of site typologies which are not considered viable if the policy is brought in. Overall the plan costs are considered with NDSS included as an assumption. marginal and would not therefore undermine the ‘delivery of the plan’ (NPPF, para. 34).

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Taylor Wimpey Concerned about impact of Accessible & Adaptable on The Viability report assesses the cost for implementing M4(2) viability in particular the costs. Strongly recommend that standards (taken from the Government’s policy impact assessment) NCC considers viability before applying a blanket policy to with cumulative plan costs including s106 and CIL liabilities. all sites within the Authority Area. The testing shows that by applying 25% M4 (2) it does not change the viability outcome of any schemes. In other words, all of the schemes that were viable in the base appraisal testing remain viable if the policy is brought in. Overall the plan costs are considered marginal and would not therefore undermine the ‘delivery of the plan’ (NPPF, para. 34).

Concerned about impact of Accessible & Adaptable on The base appraisal shows weak viability outcomes. However, the viability on brownfield sites in low value areas. sensitivity analysis shows how schemes can be viable in these types of locations (particularly the low cost developer model). Viability is a When 9 out of the 24 modelled scenarios fail (37.5%) when holistic exercise where all sensitivity testing should be considered tested at the 25% requirement – this is even more stark before a final conclusion is reached. The results of the base when you consider the impact on brownfield sites in low appraisals have not therefore been taken in isolation but considered value areas alongside the sensitivity analysis. Furthermore, the Councils are conscious that schemes are being brought forward in low and low- mid value locations, suggesting viability can be attained in more challenging market areas. The testing undertaken shows the imposition of this policy has a relatively minor impact (in financial terms). Where schemes are shown to be unviable this is not because of this policy, it is due to other factors. Overall the plan costs are considered marginal and would not therefore undermine the ‘delivery of the plan’ (NPPF, para. 34

Newcastle’s DAP Para. 4.2.6 refers to off-site Notional viability appraisals include the M4(2) policy costs and any contributions being sought to meet citywide targets, off site contributions would be of equivalent value. 57

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where on-site measures cannot be implemented. The contributions should be included in the viability appraisal (it is not clear that they have been) and the policy should clearly set out the intended associated costs.

Barratts Concerned about impact of Accessible & Adaptable on The Viability report assesses the cost for implementing M4(2) viability. standards (taken from the Government’s policy impact assessment) with cumulative plan costs including s106 and CIL liabilities.

Council’s own evidence is suggesting most schemes of The testing shows that by applying 25% M4 (2) it does not change 100 homes are unviable. Clear that 25% M4(2) is not the viability outcome of any schemes. In other words, all of the viable. schemes that were viable in the base appraisal testing remain viable if the policy is brought in. Overall the plan costs are considered marginal and would not therefore undermine the ‘delivery of the plan’ (NPPF, para. 34).

Suggest testing the impact of M4(2) standard at 10% M4(2) costs have been tested at 10% proportion scheme size. instead of 25%. Whether the M4 (2) is set at 10% or 25% it doesn’t impact on the overall viability outcomes of the base appraisals. In other words, those schemes that are unviable at 25% are also unviable at 10%, and likewise those that are viable at 10% are also viable at 25%. The M4 (2) provision is not therefore defining the viability outcome in these scenarios, it is other factors.

The viability implications of this policy are likely to have a There is recognition that delivery in certain parts of Gateshead is much greater impact on sites in Gateshead, than challenging – however, the sensitivity analysis shows how schemes Newcastle, due to the higher number of low value areas can be viable in these types of locations (particularly the low-cost and the Council’s commitment towards delivering developer model). Viability is a holistic exercise where all sensitivity testing should be considered before a final conclusion is reached. The 58

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housing on brownfield land and as part of wider results of the base appraisals have not therefore been taken in regeneration schemes. isolation but considered alongside the sensitivity analysis. The testing undertaken shows the imposition of this policy has a relatively minor impact (in financial terms). Furthermore, the Council is conscious that some schemes are being brought forward in low and low-mid value locations, suggesting viability can be attained in more challenging market areas – delivery is being promoted by the Council through its Joint Venture Partnership, through the facilitation of development on Council owned sites, along with other measures.

Persimmon Introduction of this policy would impact on the viability of The Viability report assesses the cost for implementing M4(2) development. standards (taken from the Government’s policy impact assessment) with cumulative plan costs including s106 and CIL liabilities.

The testing shows that by applying 25% M4 (2) it does not change the viability outcome of any schemes. In other words, all of the schemes that were viable in the base appraisal testing remain viable if the policy is brought in. Overall the plan costs are considered marginal and would not therefore undermine the ‘delivery of the plan’ (NPPF, para. 34).

Disappointing to note that Councils have continued to The Councils have undertaken significant engagement with seek the introduction of this policy without additional Persimmon and stakeholders regarding the viability assumptions dialogue on the viability implications of its introduction. taken in the Viability and Deliverability Report. A questionnaire has been published for comments on 2 occasions to support the plan Introduction of this policy would have an impact upon the making ( See Appendix 2 a/2b) , 2 stakeholder workshops were held viability of development and there have been / are in 5 July 2017 (SHMA, Appendix 2) and June 2018 (Local Plan outstanding objections from the industry on the viability Viability) ( Appendix 3 ) and separate meetings were held with HBF assumptions used in the supporting evidence. These are and each local plan viability objector in July 2018 ( Appendix 4). A provided in previous representation response. 59

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further meeting was held with Persimmon on 1 February 2019 to seek to clarify data submitted in the Regulation 19 representations.

Gentoo Homes Newcastle City Council must provide further evidence to The impact on viability of this policy has been considered in detail in show the potential impact this policy requirement could the report (with various sensitivity testing undertaken). have upon viability to show that sites will remain deliverable and contribute towards meeting the identified The Council considers it has carried out due diligence in progressing housing need. Policy DM6 through the local plan making process: engaging with stakeholders, considering objections and verifying evidence in compliance with national policy and the neighbouring authority’s evidence that was found sound (North Tyneside Local Plan adopted in 2017). Further scenario testing and review of compliant housing layouts in Newcastle has been tested based on specific concerns raised at Regulation 19 consultation. Gladman The 2018 Viability and Deliverability Report which The impact on viability of this policy has been considered in detail in highlights viability issues showing that the 25% accessible the report (with various sensitivity testing undertaken). The costs for and adaptable home standard is not viable for any meeting M4 (2) are relatively low (£2,000 per dwelling), however scheme in the low-mid, low urban and low urban/ meeting M4 (3) is a significant cost. suburban areas tested. The council’s own evidence is not supportive of the proposed policy requirements The base appraisal shows weak viability outcomes. However, the sensitivity analysis shows how schemes can be viable in these types of locations (particularly the low cost developer model). Viability is a holistic exercise where all sensitivity testing should be considered before a final conclusion is reached. The results of the base appraisals have not therefore been taken in isolation but considered alongside the sensitivity analysis. Furthermore, the Councils are conscious that schemes are being brought forward in low and low- mid value locations, suggesting viability can be attained in more challenging market areas. The testing undertaken shows the imposition of this policy has a relatively minor impact (in financial 60

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terms). Where schemes are shown to be unviable this is not because of this policy, it is due to other factors. Overall the plan costs are considered marginal and would not therefore undermine the ‘delivery of the plan’ (NPPF, para. Gleeson The report shows that, with 25% accessible and The base appraisal shows weak viability outcomes. However, the adaptable homes standard, no scheme is viable in low- sensitivity analysis shows how schemes can be viable in these types mid and low value areas in Gateshead. of locations (particularly the low cost developer model, which follows the type of approach a housebuilder such as Gleeson is likely to adopt).

Viability is a holistic exercise where all sensitivity testing should be considered before a final conclusion is reached. The results of the base appraisals have not therefore been taken in isolation, but considered alongside the sensitivity analysis.

Furthermore, the Council is conscious that schemes are being brought forward in low and low-mid value locations, suggesting viability can be attained in more challenging market areas. The testing undertaken shows the imposition of this policy has a relatively minor impact (in financial terms). Where schemes are shown to be unviable this is not because of this policy, it is due to other factors.

POLICIES Flood Risk & Water Management (DAP DM26) & Design Quality (Gateshead MSGP25);)

Taylor Wimpey Green roofs and walls should be considered subject to The incorporation of green/ living roofs and walls is intended to be a viability criteria for assessing the assessing surface water management/ design quality of proposals, and not a policy requirement to be factored into the viability assessment.

POLICIES: Water Quality & River Environments (Gateshead MSGP30/MSGP31) 61

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Story Homes Gateshead: There has been no assessment or justification Flood risk mitigation is considered to be an abnormal cost. A general as to what requirements will be asked for on sites abnormal cost has been allowed in the viability testing. pursuant to flood risk and surface water management and the viability or cost implications of these. Notwithstanding this, as per the PPG, abnormal costs should be reflected through the benchmark land value (i.e. if abnormals increase this should put a downward pressure on the benchmark land Newcastle: Department for Environment, Food and Rural value). This adjustment to the benchmark land value therefore serves Affairs document entitled ‘Sustainable Drainage Systems to largely offset the impact of flood risk mitigation costs (if found to – Non-statutory technical standards for sustainable be above the abnormal costs already allowed for). drainage systems’ (March 2015) explicitly provides that Surface water management typically walls within the externals the design of the site for exceedance should be based on allowance. However, if an ‘extra over’ cost is identified then this a reasonable and practicable approach to flood risk would also be regarded as an abnormal cost and the comments above rather than it driving a compromised or unviable design would apply. solution.

POLICIES Provision of open space, sports and recreational (DAP DM31 & Gateshead MSGP41)

Taylor Wimpey Unclear whether this policy has been subject to Open space standards are discussed in section 7.2. As stated, it viability testing. Viability is a key concern and we is assumed that some of the open space standards will be strongly recommend that the Council considers provided through available on-site land. Where this is not viability before applying this policy or includes text possible an off-site provision is required. This will vary from site advising that the application of the standards is to site. subject to viability. The £2,000 to £4,000 per dwelling allowance for S106 costs includes open space standards not met by on-site provision.

Gateshead: Should not be applicable to the CSUCP The representor presents no detailed evidence to substantiate allocations – it will have viability implications their concern regarding the viability implications of the policy.

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Bellway Gateshead: Our client has an overriding concern that Open space standards are discussed in section 7.2. As stated, it the proposed policy will have viability implications is assumed that some of the open space standards will be provided through available on-site land. Where this is not possible an off-site provision is required. This will vary from site to site.

The £2,000 to £4,000 per dwelling allowance for S106 costs includes open space standards not met by on-site provision.

The representor presents no detailed evidence to substantiate their concern regarding the viability implications of the policy.

Nationally Described Space Standard Policies (Newcastle DAP DM7 & Gateshead MSGP13) - Bellway There is no viability evidence that the impact of the NDSS Paragraph 7.1.11 in the V&D Report deals with the potential impact has been considered in relation to density (bigger on density. Where density does increase, this is in lower value floorplates means it will be difficult to achieve locations where there is greater scope for 2.5/3 storey dwelling appropriate densities). types. Also, the NDSS rates assumed are average and could be reduced in lower value locations where concerns about density are identified.

As a result of the policy CIL will increase CIL impacts on high and high-mid locations only. Here, there are a disproportionately for 2 and 3 bed houses. higher proportion of 4b dwellings, reducing the concerns raised about CIL increasing for 2/3 beds. Furthermore, overall densities are similar to previous Council testing, minimising the CIL impact.

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The standards will increase costs relative to revenues – A detailed assessment of this policy has been undertaken, in line with there needs to be a detailed assessment of the impact of the requirements of the PPG. As detailed in the V&D Report all this policy. permutations of NDSS cannot be tested (as this would require thousands of iterations). In line with the requirements of the PPG it is therefore appropriate to test average NDSS figures.

When taking into account the already evidenced viability Paragraph 7.1.15 onward in the V&D Report deals with concerns the implementation of an NDSS policy would affordability. There would be an adjustment in price, however we only serve to further harm viability, affordability and conclude that the impact would be relatively minimal and not to the deliverability. extent where it would undermine sales. Also, for lower value locations, the low-cost developer model has been considered (where more basic products are delivered). This helps ensure affordability.

Story Homes The proposed standards will have a negative impact on Paragraph 7.1.15 onward in the V&D Report deals with affordability. viability, affordability and choice. It is noted that some There would be an adjustment in price, however we conclude that typologies are unviable with NDSS applied. The evidence the impact would be relatively minimal and not to the extent where shows lack of viability in low and low-mid areas. it would undermine sales. Also, for lower value locations, the low- cost developer model has been considered (where more basic products are delivered). This helps ensure affordability.

Overall, based on the appraisal testing undertaken (both typology and site specific), including the sensitivity analysis, the V&D Report concludes that the NDSS can be viably provided and would not undermine overall plan deliverability.

The cumulative impact of this and other policies needs to A detailed assessment of this policy and other policies in the plans be considered in the context of housing delivery have been undertaken, in line with the requirements of the PPG. challenges.

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Taylor Wimpey States that the policy will lead to bigger floorplates and a A detailed assessment of this policy has been undertaken, in line reduction in site density and capacity, and increased with the requirements of the PPG. affordability pressure. Paragraph 7.1.11 in the V&D Report deals with the potential impact on density. Where density does increase, this is in lower value locations where there is greater scope for 2.5/3 storey dwelling types. Also, the NDSS rates assumed are average and could be reduced in lower value locations where concerns about density are identified.

Paragraph 7.1.15 onward in the V&D Report deals with affordability. There would be an adjustment in price, however we conclude that the impact would be relatively minimal and not to the extent where it would undermine sales. Also, for lower value locations, the low- cost developer model has been considered (where more basic products are delivered). This helps ensure affordability.

Taking into acount the viability concerns and deliverability issues currently demonstrated by Gateshead Council, implementation of the NDSS will only compound these issues.

CIL will increase disproportionately for 2 and 3 bed houses. Standards will increase costs relative to revenues. CIL impacts on high and high-mid locations only. Here, there are a higher proportion of 4b dwellings, reducing the concerns rased about CIL increasing for 2/3 beds. Furthermore, overall densities are similar to previous Council testing, minimising the CIL impact.

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Barratt Homes The introduction of NDSS will have a negative impact on Paragraph 7.1.15 onward in the V&D Report deals with affordability. viability and deliverability by increasing build costs and There would be an adjustment in price, however we conclude that reducing capacity/affordability on sites which may the impact would be relatively minimal and not to the extent where already have been bought at an agreed land value – this it would undermine sales. Also, for lower value locations, the low- could threaten infrastructure provision, price first time cost developer model has been considered (where more basic buyers out of the market, whilst bigger houses will take products are delivered). This helps ensure affordability. longer to build. The timescales adopted in the testing are reflective of the nature of each typology (including density). We therefore stand by the allowances as being reasonable.

Clarification as to whether areas are GIA. The areas referred to are GIA.

2.5 / 3 storey dwellings are BDW’s least popular house 2.5 / 3 storey dwelling types have been proposed, permitted or types. offered for sale in the Newcastle and Gateshead area at:

(i) Backworth Park, Backworth (ii) St Bartholomews Court, Benton (iii) Elmwood Park Court (Persimmon), North Gosforth (iv) Holystone Park (Bellway), Holystone (v) Brunton Meadows (Persimmon), North Gosforth (vi) North Gosforth Park (Barratts), Wideopen (vii) Augusta Park (Persimmon), Dinnington (viii) Heritage Green (Miller Homes), Shiremoor (ix) Brunton Green (Taylor Wimpey), Newcastle (x) Sheraton Park (Keepmoat), Dinnington (xi) The Rise (Barratts), Scotswood (xii) The Garth (Keepmoat), West Denton (xiii) Winlaton Clinic Site, Hanover Drive 66

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(xiv) Dunston Hill (Persimmon) (xv) Land at Church Road - 12 dwellings - DC/18/00764/FUL (xvi) Rowlands Gill School – Joint Venture/Gateshead Regeneration Partnership - DC/17/00946/FUL (xvii) Innovation Village (land east of Marigold Ave) – Home Group - DC/17/01168/FUL (xviii) Land East of Collingdon Road High Spen – Avant Homes - DC/18/00859/FUL (xix) Crawcrook North – Taylor Wimpey – Ashton-G house type - DC/15/01098/FUL

The widespread offering for 2.5 / 3 storey products suggests there is a market for this type of housing across the Newcastle area.

Bill Quay Ltd The imposition of MSGP13 will have implications for Paragraph 7.1.15 onward in the V&D Report deals with affordability. affordability issues, particularly in a lower market value There would be an adjustment in price, however we conclude that area such as Gateshead the impact would be relatively minimal and not to the extent where it would undermine sales. Also, for lower value locations, the low- cost developer model has been considered (where more basic products are delivered). This helps ensure affordability.

Gladman NDSS introduces additional costs, with implications for Paragraph 7.1.15 onward in the V&D Report deals with affordability. affordability. NDSS can add significantly to the cost of the There would be an adjustment in price, however we conclude that property and in turn increase the cost of an entry-level 2- the impact would be relatively minimal and not to the extent where bedroom dwelling, exacerbating affordability issues. it would undermine sales. Also, for lower value locations, the low- cost developer model has been considered (where more basic products are delivered). This helps ensure affordability.

Paragraph 7.1.11 in the V&D Report deals with the potential impact on density. Where density does increase, this is in lower value 67

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NDSS may also limit the number of dwellings that can be locations where there is greater scope for 2.5/3 storey dwelling delivered on sites, potentially below what is suggested in types. Also, the NDSS rates assumed are average and could be MSGP. reduced in lower value locations where concerns about density are identified.

Home Builders States that the standards can have a negative impact on Paragraph 7.1.15 onward in the V&D Report deals with affordability. Federation viability, increase affordability issues and reduce There would be an adjustment in price, however we conclude that customer choice. The effects on viability should be the impact would be relatively minimal and not to the extent where considered - the base appraisals within 11.11 of Viability it would undermine sales. Also, for lower value locations, the low- and Deliverability Report 2018 show the low and low-mid cost developer model has been considered (where more basic areas are not considered viable. Consideration should be products are delivered). This helps ensure affordability. given to the effect of this policy as well as cumulative effects of other policies on delivery, considering A detailed assessment of this policy and other policies in the plans the ongoing delivery issues against the CSUCP have been undertaken, in line with the requirements of the PPG. requirements (in Gateshead).

Persimmon Homes Representation provides a worked example Paragraph 7.1.15 onward in the V&D Report deals with affordability. demonstrating NDSS will adversely affect affordability. There would be an adjustment in price, however we conclude that the impact would be relatively minimal and not to the extent where it would undermine sales. Also, for lower value locations, the low- cost developer model has been considered (where more basic products are delivered). This helps ensure affordability.

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Appendix 3: Developer & Stakeholders Viability Breakfast Meeting Note; 18/06/2018 Attendees David Newham – CP Viability Ltd Kath Lawless – Newcastle Council Neil Wilkinson – Gateshead Council Kathy Verlander – Newcastle Council Brian Stobbs – Northumbria Police Emma Warneford – Newcastle Council Matthew Simpson – George F White Rebecca Winlo – Newcastle Council Richard Garland – George F White Chris Carr – Gateshead Council Laura Roberts – NWL Callum Moody – Gateshead Council Victor Cadaxa – T&W Local Access Forum Louis Goffe – Newcastle University Nigel Harrison – T&W Local Access Forum Mark McKevley – Bellway Alastair Willis – Stephenson Halliday Viola Rook – Planning consultant Andrea King – Northumberland County Council James Reid – Barratt Homes Amy Hordon – GVA Kristina McKenna – Taylor Wimpey Hannah Furness – GVA Zoe MacKay – MMO Hannah Gray – GVA Curtis Samantha – LSH Stuart Grimes – Persimmon Homes Sandra Killen – Northumbria Police

Purpose of Meeting Meeting to discuss viability implications of Gateshead’s Making Spaces for Growing Places, and Newcastle’s Development and Allocations Plan. Introduced a number of changes and offered an opportunity to comment for a number of key stakeholders. Invitations were sent to those who had made comments on the viability of either or both plans as part of the authorities’ consultation, and individuals and groups who had indicated that they wished to be contacted about further planning policy developments in both authorities’ consultation databases.

CP Viability Presentation David Newham (CP Viability) outlined the methodology and assumptions behind the viability assessment. The viability testing conducted builds on previous testing done for the Core Strategy and CIL. It is based on current NPPF but considers potential future impact of NPPF/PPG changes. Notably among these is the new definition of affordable housing, which now includes affordable housing to rent, starter homes, discounted market sale, and “other affordable routes” (incl. shared ownership, equity loans, rent to buy). Regarding developer profit, draft PPG published in March 2018 suggested that 20% of revenue for market housing and 6% for affordable may be considered a suitable return for developers. The “EUV+” methodology (taking the Existing Use Value and adding a premium uplift which is considered sufficient to incentivise the landowner to sell) is set out by the draft PPG as the suggested approach to viability assessment.

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The viability of new policies proposed by the authorities was considered. The testing used an average-based approach to consider the NDSS, as there were too many possible variations to test each possible type. The modelled sizes for 2 and 3 bed flats and houses increased as a result of NDSS however some house types fell in size. The cost of implementing M4 (2) standards was described as being relatively low (<£1,590 per dwelling), especially when compared to M4 (3) which could cost up to £25,000 per dwelling. It was clarified that new open space standards could be provided on- and off-site, and that some requirements would not apply to all sites. The cost of the standards was estimated to be £300-£1000 per dwelling. The evidence used in the assessment included past viability studies, transactional evidence, past stakeholder responses, a traffic light review of complications for emerging plan policies, area wide studies of neighbouring authorities, and individual viability case examples. The site typologies used as the basis for the assessment were:

• 1 dwelling (self-build model) • 15 dwellings • 50 dwellings • 100 houses • 100 flats • 40 sheltered apartments/assisted living These included variation for urban and non-urban locations. The key residential assumptions were as follows:

• Build costs taken from the BCIS data of £982 to £1,109psqm • Average minimum rates for NDSS could be applied without adjustment to site areas, i.e. the NDSS does not negatively impact viability • 25% of dwellings were assumed to cost an additional £2,000 per dwelling to reflect the proposed M4 (2) policies • S106 costs were assumed to be £2,000 per dwelling • No significant adjustments were made to BLV from previous viability testing conducted by the Councils The residential base appraisals: results 15 dwellings marginal improvement in viability outcomes compared to 2016 50 dwellings mostly same as before, but mid urban now viable. 100 dwellings viability results same as 2016 100 flats marginal viability Sheltered only viable in high and high mid areas Different affordable housing mixes returned different results, with significant (2/3rds+) provision of DMS having a positive effect on viability overall. A low cost model for 50 unit+ schemes in lower value areas was tested to reflect the market, which made many marginal or unviable schemes viable.

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Larger 4-bed houses (121sqm compared to the NDSS average of 113sqm) was tested, which positively impacted without a negative impact on density. M4 (2) had a minimal impact on viability but testing of a 10% M4 (3) requirement found that it would make some schemes unviable. Non-residential testing found industrial and office uses to be generally unviable, and retail, student, and hotel uses to be unviable in lower value areas. Retail warehouses and supermarkets were general viable, and retail, hotels, and student accommodation consistently viable in high value areas only. Low Cost Developer Sensitivity introduced in response to sites being considered unviable by modelling being built out in regeneration areas, likely to target sites in low and low mid areas. Modelling reflects the lower specification products being at a lower build costs often is sufficient to make sites under the standard methodology viable.

Minutes of Discussion and Questions Q. Has EUV gone up to reflect build cost inflation? A. A slight adjustment was made to recognise upward pressure on sales values. Sales data from the land registry and EPC register was considered. Modelling has assumed upward pressure on build costs increases have fed through into higher sales values as suggested by the increase in newbuild values in April and March 2018. Q. EPC is based on internal heated area, so how has the assessment accounted for the cost of building garages? A. The net sales area includes garages, so the cost of building them can be assumed to be recovered when they are sold. Q. If viability assessment shows that a site is unviable, but a neighbouring one could come forward, how is this dealt with when allocating sites? A. Sites are assessed for viability as part of the allocations process. The Councils have to be confident that sites could bear costs. Abnormals should be mitigated by a knock-on reduction in land value, to an extent. Sites are not allocated unless they are demonstrably deliverable. Q. This approach puts a greater burden on landowners to provide evidence at the plan making stage. A. As part of the planmaking process landowners are being requested to update evidence on their sites. Q. The Councils need to allocate enough sites to allow a buffer for viability. A. Inspectors discourage this approach as they are trying to prevent developers from promising things that cannot be delivered, and failing to bring sites forward due to viability. Q. The effect of the M4 (2) standard on plotting and mapping overall is a major cause for concern as it will impact on land take. A. Work to establish the potential impact of this is ongoing.

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Appendix 4: Persimmon Stakeholder Viability Meeting Note; 27/06/2018 1. Attendees Richard Holland – Persimmon homes Kath Lawless – Newcastle Council Katherine Verlander – Newcastle Council Neil Wilkinson – Gateshead Council Chris Carr – Gateshead Council Callum Moody – Gateshead Council

2. Key Actions 2.1 RH offered to withdraw initial evidence relating to NDSS and sites at Murton in North Tyneside as the best course of action. Stuart Grimes to submit Newcastle Gateshead specific examples for the effect of NDSS on viability.

2.2 RH to review topic paper and comment on policy basis.

3. Persimmon introduction 3.1 Majority of the plan is supported only elements of concern relate to policies with plan costs ie. M(4)2 and NDSS.. Main issue from Richard Hollands perspective is policy not viability. Likely to comment on the site external assumptions in the viability assumptions questionnaire which will be covered by Stuart Grimes in a later representation. 4. M4(2) 4.1 Persimmon are however less particularly concerned with M4(2) than NDSS –98% of persimmons house types can be made accessible and adaptable standards, only apartments cannot be made m4(2) compliant at present. 5. Build Prices 5.1 Costs on build prices have increased, RH suggesting they have gone up 20-30% In the last year. 6. NDSS 6.1 Requirement for PPG test of need to be established by the Councils was considered necessary, at present there is a belief from developers that the North East doesn’t have the defined need. The test should be more than current degree of compliance and a more substantial evidence base should be given from the council to show this. 6.2 The Swale is the most popular selling house type nationally and in North Tyneside (fastest selling house type on the fastest selling site). It would require a 30% increase in floorspace to meet NDSS. Common for Persimmon is that smaller sized properties sell better suggesting a demand for cheaper (and therefore smaller) housing exists.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

6.3 Issue raised of affordability from Persimmon, if the NDSS increases sizes the price of the property will increase to match the increased footprint. For those significantly below the NDSS standards – 20% or so this will significantly increase the bottom end of the housing available prices meaning its less affordable. The Hanbury house type would require a 30% uplift in size to meet NDSS so would be expected to increase in value the same proportion. RH referred to as ‘starter homes’ though appeared to be referring to low end market homes. Concern was that the policies on NDSS might slow Persimmon sales somewhat by excluding this section of the market as affordability point gets higher pricing the low end of the market out. 6.4 Persimmon raised the issue of densities as NDSS compliant house types may affect the densities they are able to get on a site with knock on effects for viability of sites, and ability to meet density standards. 40-50% of houses on a site would need to be made larger to comply with space standards and this will likely have a knock-on effect for density. At present the units that aren’t meeting the NDSS are 2-3-bedroom units, with some quite significantly below. Very few/ no 4-bedroom units are below NDSS standards so less likely to be an issue for these house types. 6.5 Raised issues with the NDSS over ceiling height for the 3rd storey of townhouses as they can be marketed as a bedroom in the top floor however much of the floorspace isn’t recognised by the NDSS due to the height requirement on the NDSS specification. Persimmon does have a modification of these house types that are compliant with the NDSS, though this is thought to add an extra cost. 6.6 It was noted that Persimmon also referred to a practice in the industry whereby 3 bed designed homes transferred to RPs are subsequently let as 2 bed homes.

1. NDSS and M4(2) Outline vs Reserved Matters 7.1 RH enquired about whether the NDSS and M4(2) requirements would be required for applications that have outline permission or if reserved matters approval would have to be in at this stage prior to adoption of the Local Plans. 7.2 RH expressed concern that if NDSS was required on permissions in outline this would change the potential viability which is tested by developers at this stage with s106 already being agreed by this point. Belief from Persimmon that NDSS and M4(2) will change densities due to higher floorspaces and could change the requirement for s106. 7.3 RH indicated inspector at North Tyneside examination had suggested only conditioned outline sites would be required to take account of the space standards and M(4)2, for schemes permitted after the end of the transition/implementation date. 7.4 RH expressed his belief that the Inspector at the North Tyneside case suggested that only outline schemes that are conditioned to include the NDSS or M4(2) before approval would be required to be compliant rather than any existing applications. Kath insisted that it shouldn’t be assumed that if outline has been granted there shouldn’t be an assumption that it won’t apply as the council has yet to confirm its position either way.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Note of Meeting Persimmon Homes and Taylor Wimpey and Newcastle City Council- 1/2/2019

Attendees Kath Lawless- Newcastle City Council Lee Crawford- Persimmon Homes David Abercrombie- Taylor Wimpey Julie Robinson- Newcastle City Council Kathy Verlander- Newcastle City Council

Note of Discussion

1.0 The purpose of the meeting was to discuss the Pre Submission Development and Allocations Plan representations (Regulation 19). 2.0 Housing Kathy Verlander sent an email to Persimmon (20 December 2019) to request accompanying explanation of data that had been submitted in relation to space standards (NDSS) (Policy DM7) and attached as appendix 1 along with specific queries on the ‘worked example’ contained in the Persimmon Homes Regulation 19 representation. The appendix1 is the same data that was submitted with the Persimmon Homes representation on the Draft DAP (Regulation 18) that was subject of the Councils’ (Newcastle City Council and Gateshead Council) query to Persimmon at the meeting on 27 June 2018 with reference to the Joint Newcastle and Gateshead Viability and Deliverability (local plans) study.

Action- Lee Crawford to provide a short narrative to the Council to explain the NDSS data submitted with the Persimmon (Reg. 19) representation. The note also to be shared with Gateshead Council underpinning similar data submitted with representations to the local plan ‘Making Spaces for Growing Places’.

Lee Crawford and David Abercrombie reiterated the companies concerns in relation to the space standards and accessible and adaptable homes policies in the DAP (as per the regulation 19 representations) .

3.0 Ecology, Open space and Great Park District Centre- David Abercrombie summarised the Newcastle Great Park – David Abercrombie summarised main concerns with then Pre Submission DAP relate to policy wording of open space policies (and categorisation of land as open space at NGP); the weight given to ecology requirements in the policies and the hierarchy approach in policy DM29; the park and ride policy at NGP and the need to recognise anticipated mix of uses in the District Centre policy for NGP.

3.1 Kath Lawless explained the current review of representations and that there were expected to be some minor modifications proposed within the documents seeking authority to Submit the DAP at Full Council on 13 March. Submission to PINS would be expected to follow shortly after this meeting in March.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 5: Bellway Stakeholder Viability Meeting Note; 27/06/2018 Attendees Mark McKevely – Strategic land, Bellway Mark Gabriele – Bellway Neil Wilkinson – Gateshead Council Chris Carr – Gateshead Council Jason Speed – Gateshead Council Callum Moody – Gateshead Council

1. Key Meeting Actions Bellway has requested information behind the NDSS and M4(2) testing including anticipated densities Bellway to submit information on North Tyneside site regarding M4(2) and Space standards and its effect on site density Katherine Verlander to pass on Appeal decisions collected from student projects to Mark Gabriele regarding outline applications and the NDSS.

2. Bellway Introduction 2.1 Bellway currently frustrated with the delays in planning and want to increase building – Ryton and Lower Callerton sites were mentioned, however, Lower Callerton application has only recently been submitted. 2.2 Nervousness around Brexit and the future of current Help to Buy scheme, hardening market, a lot of deals to move the market on. 2.3 Bellway willing to pass on build out rates to help inform the councils approach to viability – will help LA’s cash flows and infrastructure planning. 2.4 Market Constraints can be a problem for Bellway often the build out rate can change depending on the circumstances

3. Future Building Patterns 3.1 Uncertainties relating to Brexit, help to buy and potential implications the last 3 months has seen the market harden. Every region within Bellway currently has struggling sites. Bellway will re-focus away from apartment development and is likely to continue to build for the family market. 3.2 Bellway will focus on the smaller property sizes - 2, 3 and 4 beds at the lower end of the market. 3.3 Bellway sell different product regionally, North East specific focus on family housing at 2 storeys

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4. M4(2) policies 4.1 Questioned if the wording of the Newcastle accessible and adaptable policy, and whether M4(2), can be included within actual policy rather than the supporting text to ensure that it is M4(2) being sought. Gateshead has included reference within policy, however stipulated the requirement for successor policies to be considered. Both Newcastle and Gateshead aim to provide clarity yet ensure long term provision though the policy wording as standards alter. 4.2 Bellway concerned about the cost of provision for M4(2) in regard to density. Bellway at sites in North Tyneside consider M(4) 2 provision is affecting delivery. Compliance requirement for M(4)2 are much higher with 90% of RP homes to be compliant and 50% of private dwellings. Bellway will submit evidence of these as part of the consultation and potentially be addressed more thoroughly at a subsequent meeting. 4.3 Need for M4(2) was questioned – council has clarified that need will be addressed as part of topic paper in Gateshead, whilst Newcastle has already published a topic paper on housing. Main basis of the M4(2) evidence base will however be from the SHLAA and viability evidence. The need is far higher in both LA’s than the policy requires due to deliverability considerations. 4.4 M4(2) off-site considerations in Newcastle clarified to be in only exceptional circumstances. Bellway had expressed concerns of expenditure for sites that might be unviable due to other constraints such as sloping sites which already cost money.

5. NDSS 5.1 Bellway believes around 50% of its house types meet the NDSS. Bellway builds to NDSS for RP’s so is popular with RP’s for transfers. 5.2 MG suggested that a clarification of need should be more than just non-compliant NDSS for declining house sizes as this might be part of the housing market demand. Disagreement between Bellway and the council over interpretation of the PPG over need. Council to address a more comprehensive evidence base as part of topic papers. 5.3 Bellway suggested that main areas NDSS will influence will be on 2 and 3 bed properties for market sale. Main issue being for Bellway is its focus on 2 storey house types means that changes to NDSS may affect the density that can be achieved as houses will take up more land. There was a concern raised that at the bottom end of the market higher prices might not be achieved for the smaller uptake to compensate for build costs, particularly as increased CIL charges due to higher floorspaces will affect viability. The council expects that the costs will be covered by the higher sales values achieved as a result of producing higher standards of housing. 5.4 This will be particularly compounded by their current movement towards the bottom end of the market. Bellway appeared accepting of Gateshead 20 per ha net density, though

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

suggested that it might struggle with higher densities. Councils explained density is something encouraged from central government. Bellway have indicated they will comment regarding the Questionnaires assumptions regarding density for value zones. 5.5 Bellway believe that as their products below NDSS are selling this indicates there is no need for higher levels of space, with strong performance in the second-hand market as well. Bellway rated a 5-star builder, from their perspective they don’t see the downwards trend in sizes as a level of justification. 5.6 Council believes the CSUCP has set out the principle for housing standards that have been accepted without challenge. On this basis focus of consultation should be focused on viability of the policies rather than the principle of space. 5.7 Bellway has enquired whether changes in densities from NDSS might mean that land may need to be released from the greenbelt. The council has indicated that they don’t believe that it will affect the land allocations as evidence so far hasn’t suggested this requirement.

6. NDSS and M4(2) Outline vs Reserved Matters 6.1 Bellway queried the transition period for introducing housing standards based on outline permissions or on reserved matters. Bellway has indicated that land deals have been struck on the basis of no NDSS and M 4(2) being required and indicative layouts, so might affect the viability of site if policy costs increase. 6.2 Council has indicated its considering the standard practice currently. Student planning project evidence suggests that Inspectors at planning appeals have applied housing standards to reserved matters where policies (NDSS and M4(2)) have been adopted. Kathy to pass on these to Bellway 6.3 Council likely to seek legal opinion before concluding on this matter.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 6: Home Builders Federation Stakeholder Viability Conference Call; 11/07/2018: 1. Attendees Joanne Harding – Home Builders Federation Chris Carr – Gateshead Council Kath Lawless – Newcastle City Council Kathy Verlander – Newcastle City Council Rebecca Winlo – Newcastle City Council

2. Key Meeting Actions Councils to pass on copies of the viability questionnaire and presentation slides from the morning’s meeting to JH. Councils to look up Stockton’s viability policy as a (pre-NPPF 2) example. JH to bring up the need for housebuilders to provide evidence showing that the NDSS is unviable. HBF to submit any further comments as soon as possible.

3. HBF Introduction 3.1 HBF listen to what their members tell them and represent their views. They do not represent specific developers’ interests in individual sites, or comment on the viability or infrastructure requirements of sites. 3.2 HBF primarily deal with high level strategy, acting as a point of liaison between developers and Councils.

3.3 Regarding Gateshead and Newcastle’s emerging plans, HBF have been in discussion with Persimmon, Bellway, and Barratt David Wilson Homes. KL confirmed that both Councils had met with the same developers individually to discuss issues of viability. Noted that other developers had not taken up the offer of a one to one meeting; JH stated that this did not necessarily mean that those developers would not bring up issues at some point.

3.4 HBF have arranged a meeting later this month to discuss the plans of north east authorities with developers as many are coming forward currently. Additionally, there are meetings every few months to go over issues and discuss planning in the area.

4. Key Meeting Actions Councils to pass on copies of the viability questionnaire and presentation slides from the morning’s meeting to JH. Councils to look up Stockton’s viability policy as a (pre-NPPF 2) example. JH to bring up the need for evidence showing that the NDSS is unviable with developers.

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HBF to submit any further comments as soon as possible.

5. Deliverability of Sites 5.1 HBF recommend a 20% buffer of sites over and above the total OAN as stated in the plans of local authorities – this is a general recommendation that is made to all LPAs rather than specific advice to Gateshead and Newcastle. Aiming to ensure that the housing requirement will still be met even if a number of sites do not come forward. HBF encourage flexibility of supply in general – anything moving in this direction is welcomed but the 20% buffer is preferred. 5.2 KV and CC stated that there would be slight changes in allocations in the next stage of the plans, and that a 20% buffer was already applied to the five year housing land supply as opposed to allocations (to comply with the NPPF/PPG).

6 Accessible and Adaptable Policies 6.1 HBF had requested clarification about which M4 standard would be adopted in the plans. Both Councils clarified that the M4(2) standard alone was being taken forward as the M4(3) standard had too great an impact on viability. The policies as worded in the draft plans are to be carried forward into the next stage of the plans. 6.2 JH expressed concern about the evidence the Councils had used to support this policy, noting that other councils had struggled to demonstrate the adopting the standards was preferable and more cost effective than adapting the existing stock. KV stated that this issue had been addressed in detail in the joint SHMA.

7 Viability Policy 7.1 Clarified that an additional policy setting the circumstances when viability appraisals would be acceptable was being proposed by both authorities, as per the draft NPPF/PPG. JH wasn’t familiar with many examples of policies which complied with the draft NPPF proposals as yet, but advised that Stockton have an existing policy on viability. 7.2 Noted that a joint report was being drafted by the Councils on viability and deliverability, which would include any more detailed stakeholder comments submitted. Both Councils requested any relevant additional evidence. JH stated that the HBF generally did have some concerns about the approach taken but that specific developers would raise these themselves.

8 NDSS 8.1 HBF consider that evidence supporting this policy should include market indicators, for example sales rates. Acknowledged that HBF were not familiar with authorities who had considered quality of life impacts in their evidence. However stated that demonstrating that smaller housing was being built did not equate to demonstrating a need for larger homes. HBF’s position is that the market will provide what the market needs.

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8.2 KL stated that developers had yet to provide evidence showing that the policy would not be viable; JH stated that she would raise this with them. 8.3 KV noted that the policy follows on from that in the CSUCP which requires a reasonable level of internal space. Both Councils reviewing their evidence base on this policy as part of the next stage of the plan. The joint SHMA set out the continued need for family (3 bed plus) housing up to 2030 and that standards needed to reflect housing needs.

9 Density Policy

9.1 Gateshead Council have an existing policy on density (minimum of 20 dwellings per hectare), through the majority of allocated sites will be built to higher densities. HBFs position is that there should be flexibility where required in cases where meeting the requirements of this (and any subsequent density policy) is really not possible. 9.2 Queried whether the HBF have a view on density policies as may be required by the new NPPF. JH stated that the priority for them is flexibility to allow the right homes to be built in the right places.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 7: Barratt David Wilson Homes Stakeholder Viability Meeting Note Stakeholder Viability Meeting Note; 04/07/2018

1. Attendees Neil Milburn – Barratt David Wilson Homes Chris Carr – Gateshead Council Kath Lawless – Newcastle City Council Kathy Verlander – Newcastle City Council Rebecca Winlo – Newcastle City Council

2. Key Meeting Actions BDWH have requested more information on the data sources used by CP Viability; however the Councils sources are in the viability assumptions questionnaire. BDWH to submit evidence which does not align with that outlined in the questionnaire to the Councils. Councils to consider BDWH’s view on the potential for NDSS and M4 (2) policies to reduce land value and therefore constrain land supply.

3. Barratt Introduction 3.1 Three key issues for developers:

• Profit, as developments must be profitable in order to come forward • Continuity of supply, which starts with availability of land • Model relies on careful management of cashflow a. Model changed after recession. In 2008 BDW had £2.7bn debt compared to an asset value of £380m. Are now more careful with how cashflow is managed – for example, fewer large blocks of flats for sale come forward as there is no return on investment until the full development is complete. b. There is a big variation in value between BDWH and other developers as BDWH are exposed in the London market, which leads to greater peaks and troughs in value compared to other developers. c. Build out rate is approximately 0.6-0.7 of a house per week. BDWH count by build equivalents, so 10 foundations laid or 10 roofs added is counted as one dwelling complete. d. There are seven stock properties on site at any one time. Sales are good, although sourcing labourers and materials (particularly internal doors) is difficult.

4. Land Value and Land Ownership 4.1 For both authorities, many landowners have had their land for centuries and will be looking to manage their portfolio for centuries to come. NM accepted the principle that landowners would need sufficient financial incentive to sell. KL stated that the Councils are happy to sell land.

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4.2 NM queried what constituted reasonable land value: he considers EUV+ to be flawed as the ‘plus’ value would need to surpass existing income from the land in order to incentivise a landowner to sell. This is difficult to do accurately as part of a standardised methodology as each site will be different. It was acknowledged that the Councils must work within the methodology required by the government. 4.3 It was also acknowledged that Councils are required to work with standard inputs. NM stated that BCIS do not measure size but specification, and queried what was considered low or high spec. Also stated that BCIS is based on net heated area rather than GIA which leads to inaccuracy.

5 Space Standards 5.1 BDWH have no issue with space standards provided that they do not affect continuity of supply. Concerned that the policies would prevent BDWH from delivering at current rates. 5.2 Current house types as are being built in the area do not comply with the NDSS, though BDWH have a range of house types which are compliant in anticipation of more LPAs adopting the policy. NM acknowledged that the cost of NDSS would pass on to land value but stated that this would affect the willingness of landowners to sell. 5.3 NDSS is 10% bigger than what is currently being built. So, if standard density is 15 houses per acre, NDSS would reduce this to 14 dwellings per acre. The existing compliant range is two storeys. Adding extra floors to help ensure NDSS compliance is not a preferred solution as it increases the build time and resources required but not in line with profit. BDWH have never built an NDSS compliant house as a result of this.

6 Profit Implications 6.1 The Somerton is 1050 square feet (or around 1220 including the internal garage), and has an NDSS compliant sister version. However this is rarely built as it generates less income relative to build cost, and because fewer will fit on a site. Revenue falls, cost rises, profit remains the same as a percentage but land value takes the hit – this will lead to land supply drying up. Nothing wrong with planning for decline but the Councils should be clear about it if this is what the result will be. 6.2 Brexit, Help to Buy and labour shortages are constraining delivery. Builders won’t build for a 20% margin regardless of what NPPF says. NDSS will drive profit down. £12k build cost per unit for NDSS and M4 (2). KL requested evidence to support this. 6.3 CIL is already affect viability of sites. Wideopen site (formerly north Gosforth) would not have come forward if CIL had been adopted at the time. BDW don’t include finance in all-in build cost (£150 per square foot), some do. Need to know what you’re getting for cost estimated by each developer.

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6.4 BDWH used to build to a resi mix of 20:40:40 (2 bed, 3 bed, and 4 bed), now build a mix of 20:60:20. Developers prefer to build smaller homes as this ensures profit. Often get a plot with a headline value from which costs can be deducted. Need to know the value of land which is to be traded – moving towards £250,000 per acre.

7 Current Sites and Market 7.1 BDWH current sites in the area consist of Wideopen, Scotswood, and Springfield (city edge). NM states that the market has changed recently with people increasingly wanting to live in the city. 7.2 Housebuilding is a difficult industry for new developers to break in to because the initial costs are too great. Lots of uncertainty in both Northumberland and Durham as new plans are being developed. All this constrains development overall. 7.3 NM suspects that EUV+ will be required by the new NPPF which will further affect development as it is not considered sufficiently accurate by the industry. KL notes that the government would not require this methodology if they felt it would significantly reduce land supply as this would be contrary to their promotion of increased homebuilding. 7.4 NM’s primary concern is the impact on land supply as the costs will by necessity be passed on to the landowner, which could affect their willingness to sell. Dwellings costing £250,000 struggle to sell so it is difficult to recoup the extra costs from the purchaser.

8 Questionnaire and Evidence

8.1 Noted that evidence will need to be formally submitted in order to be considered. BDWH have little time to prepare something to submit. Queried where DN’s evidence had come from. Councils agreed to go back to DN on specific issues:

• Where have revenue figures come from? • Can he provide comparable for figure one? • What is meant by externals in CPV’s methodology? 8.2 Councils requested data on how the market works for BDWH. Need hard facts to back information up. DN used EPCs as basis for revenues data, so BDWH consider that they must be overstated. NM stated that he would need to know what DN had used as evidence in order to provide comparable evidence for BDWH.

8.3 Clarified that the purpose of the meeting was to provide BDWH with an opportunity to submit alternative evidence if they would like to. Informed NM of key changes from the previous draft DAP to this version – a density policy is being considered, and a viability policy has been added, neither of which was felt to cause an issue for BDWH.

8.4 NM considered Gateshead’s density policy requirement to be very low as such low density would be unlikely to be viable. Stated that bungalows are difficult to sell as the over 55s can’t get mortgages

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and bungalows have a very high cost relative to the floorspace they take up.

8.5 NM questioned the idea that different build costs should be used in different viability areas as build costs are the same for the developer regardless of location. NM does not object to the Councils adopting one policy or another but is concerned about the potential effects on land supply, considering this to be the key issue.

8.9 KV noted that the government hasn’t expected the NDSS to cost more and that this has borne through at inquiry. NM stated that the policy will impact on viability. Councils clarified that CP Viability’s results do not show that the NDSS will have no impact on viability but that it will not make development unviable. 8.10 NM noted that land value in mid value areas is £220,000-£250,000.

Deliverability and Viability Report Appendices CP Viability Ltd August 2018

Appendix 8: Registered Provider Stakeholder Viability Breakfast Meeting; 18/06/2018

Attendees David Newham – CP Viability Ltd Kath Lawless – Newcastle Council Neil Wilkinson – Gateshead Council

Kathy Verlander – Newcastle Council Emma Warneford – Newcastle Council Rebecca Winlo – Newcastle Council Chris Carr – Gateshead Council Callum Moody – Gateshead Council Lisa Hogarth – Riverside Jon Mitford – Leazes Homes Jeff Boyd – Bernica Michael Farr – Karbon Homes Sarah Wilson – Thirteen Group Lynn Waters – Your Homes Newcastle

CP Viability Presentation David Newham (CP Viability) outlined the methodology and assumptions behind the viability assessment.

The viability testing conducted builds on previous testing done for the Core Strategy and CIL. It is based on current NPPF but considers potential future impact of NPPF/PPG changes. Notably among these is the new definition of affordable housing, which now includes affordable housing to rent, starter homes, discounted market sale, and “other affordable routes” (incl. shared ownership, equity loans, rent to buy). Regarding developer profit, draft PPG published in March 2018 suggested that 20% of revenue for market housing and 6% for affordable may be considered a suitable return for developers. The “EUV+” methodology (taking the Existing Use Value and adding a premium uplift which is considered sufficient to incentivise the landowner to sell) is set out by the draft PPG as the suggested approach to viability assessment.

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to £25,000 per dwelling. It was clarified that new open space standards could be provided on- and off-site, and that some requirements would not apply to all sites. The cost of the standards was estimated to be £300-£1000 per dwelling.

The evidence used in the assessment included past viability studies, transactional evidence, past stakeholder responses, a traffic light review of complications for emerging plan policies, area wide studies of neighbouring authorities, and individual viability case examples. The site typologies used as the basis for the assessment were:

Different affordable housing mixes returned different results, with significant (2/3rds+) provision of DMS having a positive effect on viability overall. A low cost model for 50 unit+ schemes in lower value areas was tested to reflect the market, which made many marginal or unviable schemes viable. Larger 4-bed houses (121sqm compared to the NDSS average of 113sqm) was tested, which positively impacted without a negative impact on density. M4 (2) had a minimal impact on viability but testing of a 10% M4 (3) requirement found that it would make some schemes unviable. Non-residential testing found industrial and office uses to be generally unviable, and retail, student, and hotel uses to be unviable in lower value areas. Retail warehouses and supermarkets were general viable, and retail, hotels, and student accommodation consistently viable in high value areas only. 86

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Low Cost Developer Sensitivity introduced in response to sites being considered unviable by modelling being built out in regeneration areas, likely to target sites in low and low mid areas. Modelling reflects the lower specification products being at a lower build costs often is sufficient to make sites under the standard methodology viable.

Comments Received from RP’s

NDSS Jeff Boyd (Bernicia) suggested that, as many units do not meet the NDSS, introduction of the standards would lead to an increase in disagreements about size at the application stage, which would have to be resolved on a case by case basis. It was clarified that the standards, if adopted, would apply to all homes permitted from 2020. Michael Farr (Karbon homes) suggested size of homes matters to Karbon, they want the houses to be suitable sizes for residents and often see the size of homes offered for transfer as an issue. Karbon does build some housing at present below the NDSS standards due to a viability basis, however indicated some of the houses for transfer where much smaller. Due to HCA funding for houses for affordable rent meeting NDSS standards are often modelled at an affordable rate of rent and houses that don’t meet the NDSS are currently modelled at social rent rates. Jeff Boyd indicated HCA however avoided by Bernicia due to the levels of bureaucracy required to acquire the funding.

Build Cost Assumptions Michael Farr and Jeff Boyd indicated that the general build costs were around the right levels they would expect, though are slightly on the high side. Michael Farr suggested that the £1,200 per m2 build cost would be inclusive of abnormal costs while the BCIS average used doesn’t include abnormal within this.

Stock Transfer MF indicated 20-25% of current stock at Karbon is taken on from developers, often the standard of what is offered from Developers is often sub-par and mainly doesn’t meet the NDSS standards. Karbon and Bernicia are still actively bidding for housing transfers.

Profit Margins Bernicia and Karbon both indicated that the 6% profit margin would be acceptable with MF indicating that this would be towards the high end they would get on any scheme. Agreement that in any modelling for 100% affordable it is always is at a loss even with HCA funding.

Affordable Housing In the North East there is little difference between affordable rent rates and social rent rates so terminology debate raised by the new NPPF definitions for affordability, they themselves aren’t sure on the terminology debate. RP’s more concerned with balancing rent capacity and the housing being affordable for the user.

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Bernicia and Riverside had a consensus with those speaking from RP’s that the rent was often around the housing benefit level in the area, RP’s would be reluctant to allow the rents to go much higher than this level. There was a feeling that the potential for charging higher rents will likely be dictated by government policy.

Karbon were concerned about the new emphasis on affordable home ownership, querying how this related to need and how the issue would be dealt with by the Councils, as it could impact on the delivery of housing need. The Councils encouraged RPs to offer their views on this issue. MF indicated that Karbon wouldn’t be happy with any more than a 70 (for rent) and 30 (ownership) split in building for affordable housing in light of the NPPF movement towards increasing affordable ownership. This concern seemed like an area of real concern for all RPs, with Lisa Hogarth from Riverside asking if it was possible to try to guarantee the split in affordable make up through planning policy. Council responded that through planning policy at present this is unlikely to be possible though might be able to be pursued through other manners. Both Newcastle and Gateshead politically favour ‘affordable’ provisions to be towards the rented sector, very little appetite for alternatives such as shared ownership so council likely to continue to support affordable rents.

M4(2) Bernicia and Karbon indicated that they would be happy to take on the M4 (2) stock that would likely come their way, RP’s well versed in this due to similar standards from the lifetime homes standards which they previously built. Hope from RP’s that inheriting the M4 (2) housing will help keep their costs down long term in converting housing stock. The Councils stated that much of the challenge from developers had been on size of unit rather than the cost of implementing the standards, requesting any additional evidence that the RPs could provide. MF noted that this housing product would reduce overall cost in the long term as it would save money on future adaptations, and stated that any increase in cost would likely be passed to the landowner. MF also expressed concern that the M4 (2) policy represented a move away from specialist and supported housing on the part of the Councils, however it was stated that the Councils were working to meet the need for this type of housing too, although this was not so much an issue for planning policy.

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Appendix 9: Bernicia Stakeholder (Register Provider) Viability Meeting; 26/06/2018

Attendees Kath Lawless – Newcastle Council Katherine Verlander – Newcastle Council Chris Carr – Gateshead Council Callum Moody – Gateshead Council Jeff Boyd – Assistant Director of Development, Bernicia

Bernicia profile North East only Social landlord, owns and/or manages 14,000 properties within the North East region. Has major stakes in North Tyneside and SE Northumberland being involved particularly in the regeneration projects at Meadowell. Main areas of newbuilds for Bernicia are in these two authorities but it remains active within the region and is bidding for funding for new homes in the region.

Bernicia has existing assets across the two authorities, it recently took on 140 homes at Newcastle Great Park and has a portfolio of hundreds within the authority. Bernicia currently has583 properties in Gateshead and 491 properties in Newcastle.

Bernicia is in the process of producing its own corporate housing policy, over this plan period the company has £72 million to invest, with a minimum of 500 properties to be built for rent in perpetuity, potentially this could rise to 600-700 homes.

Build costs On HCA schemes Bernicia receives 30k per dwelling £500,000-£750,000 outlay on start-up costs particularly as Bernicia land tends to be in low and low- mid value zones where its less likely to face competition. Often builds on complex brownfield sites. Bernicia currently expects build costs to be £70,000 - £78,000 for a 2 bed £78,000 to £84,000 for a 3- bed house and between 84,000 – 90,000 for a 4-bed house.

Land Assumptions Bernicia content with the 55% rent assumption for the land values, however they indicate that from Mid onwards it would become an issue for them to pay that level for land values. This is largely because of the commitment to ensure continued affordability and link the rent charged to local housing allowance, so a high value area rent might be £110 per week but a lower value is £85/90, despite the land values being much higher. For Bernicia this therefore limits it’s ability to buy land at values over the mid site value as its unviable due to the lack of comparable rise in rental income meaning RP’s don’t build in higher value areas due to land costs. Along the same lines Bernicia keener for stock transfers in Mid value areas and below but unlikely to go above this due to the costs involved in acquiring the stock for higher values areas due to cost.

Low-mid and Low areas as well as ex council sites (sometimes with obligations) are more likely to be areas for RP build outs – more likely to be complicated sites where demand is lower.

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Business Model Bernicia uses its own modelling through a site appraisal system for sites it builds out, inputs the 30- year costs against the rental income, it’s always a net loss figure at capital outlay however residual value in property remains with the intention to rent the stock out in perpetuity.

Up until 18 months ago Bernicia didn’t need to bid to housebuilders for stock transfer, but had relationships with developers who often had a first refusal style relationship with. Now mainly operates through the bidding process due to changes in personnel, believes this is likely the way it will continue to operate due to changing relationships with developers etc. 25-30% of Bernicia stock is anticipated to be bought from developers through s106 throughout the period of its corporate plan, though it does prefer to build its own due to higher build quality and greater flexibility it allows for its stock.

Bernicia happy to take on any number of units or build anything above 4 units within Newcastle and Gateshead, has the management team on the ground to make this feasible. Bernicia has bids in both Newcastle and Gateshead for sites at Dunston Hill and particularly Callerton where there has been competition from other RPs for the sites. Jeff has suggested that the 6% profit assumption for affordable homes is already fairly well established from a developer’s point of view.

NDSS Bernicia’s own build tends to meet or be very close to the NDSS standards at present. Very unlikely that Bernicia will build anything 10% under the NDSS standards though is willing to take on sites from developers that are within a +/-15% range from developers. HCA requires homes to be within 15% of the NDSS to be available for grant.

Many of the homes offered from big developers to RPs present some issues. Often the 3 bed house types in particular present sufficient space to rent out only as 2 bed homes due to the size of the smallest bedroom. This means that the RP may have to take a financial cost having paid for a 3 bed dwelling with a rental opportunity as a 2 bed dwelling. Some 3 bed houses are only 72 m3 (standard is 93m3 for 3 bed – 5 spaces).

Bernicia supports the idea of higher standards for housing, however would be prepared to take some flexibility at a level within 10% of the NDSS standards.

M4(2) Bernicia wouldn’t want all of their allocation to be m(4)2 accessible, they prefer a range of housing. In their experience of lifetime homes etc few have been subsequently adapted and of those whose needs have changed in terms of accessibility the occupiers often request a move into a bungalow.

There is an expectation that developers will try and charge more for the M4(2) to RP’s which they might be reluctant to take up in the current market considering the small level of take up presently and ability for tenants to move around within existing stock.

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Appendix 10: BCIS 2018 Article

BCIS Tender price forecast updated 11 Jan 2018 For discussion

Tender prices have risen significantly in 2017 so far, but with output remaining unchanged in 2018, and with uncertainty about the effect of Brexit negotiations in the private commercial sector, tender prices are expected to fall in the year to 3rd quarter 2018, according to the latest BCIS five-year forecast.

The current forecasts are based on the UK’s exit from the EU at the end of the two- year period following the signing of Article 50, but now assume that this is followed by a ‘transitional period’ of two years.

Based on the most recent data from the Office for National Statistics (ONS) for 2017, new work output for 2017 is now expected to rise by 3.7%. In 2018, it is anticipated that new work output will remain unchanged, resulting primarily from a sharp fall in private commercial output, which continues in 2019, leading to modest growth in new work output of 1.1%. Stronger growth in new work output in 2020, 2021 and 2022 of 4.2%, 5.7% and 4.7% respectively is predicted to be driven by strong growth in infrastructure output and a return to growth in the private commercial sector.

While almost any outcome is still possible, BCIS will continue to produce forecasts based on three scenarios. These reflect the different political outcomes from the exit negotiations from the EU and are equally likely. BCIS has revised the three scenarios in the light of recent announcements from the government regarding Brexit. The uncertainty of the results of the Brexit negotiations will undoubtedly lead to BCIS revising its assumptions again as more is known.

In all scenarios, it is assumed that there will be no change of UK government over the forecast period, that there is political stability in the rest of the world, and that a gradual rise in interest rates puts pressure on consumer spending.

Three scenarios:

□ An 'upside' scenario based on the following assumptions – The UK remains a member of the EU but with no voting rights from cessation of the two-year period following the signing of Article 50. A transitional period of two years follows, with continued payments to the EU (which will be deducted from the final 'divorce bill'). Negotiations run a lot smoother than with the 'central' scenario, providing investors with greater clarity at an earlier stage. It is assumed that following the end of the transitional period, any trade agreements with the EU will be the same as prior to the EU Referendum, and those with the rest of the world will boost the UK economy. Sterling exchange rates are expected to remain depressed until the end of the transitional period, then return to pre-EU Referendum levels thereafter, with a consequential reduction in imported materials prices. Free movement of labour continues to the end of the transitional period, with an exemption on movement of operatives in the construction industry thereafter. It is assumed that it remains desirable for EU workers to work in the UK, and that demand for construction operatives in the EU remains unchanged. The economy picks up during the transitional period as confidence returns.

□ A 'downside' scenario based on the following assumptions – Based on the assumption that the UK has a 'hard Brexit' at the end of the two-year period following the signing of Article 50, i.e. from 1st quarter 2019. It is assumed that following withdrawal from the EU, any trade agreements with the EU are a lot less favourable than prior to the EU Referendum, and there are restrictions on the movement of labour. It is assumed that Sterling exchange rates worsen, which adversely affects the price of imported materials and the desire of EU construction workers to work

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in the UK. The UK starts paying a 'divorce bill' from 1st quarter 2019. The economy goes into recession during the transitional period and only recovers at the end of the forecast period.

□ A 'central' scenario based on the following assumptions – The UK remains a member of the EU but with no voting rights from cessation of the two-year period following the signing of Article 50, i.e. from 1st quarter 2019. A transitional period of two years follows, with continued payments to the EU (which will be deducted from the final 'divorce bill'). It is assumed that following the end of the transitional period, any trade agreements with the EU are less favourable than prior to the EU Referendum. Sterling exchange rates are expected to remain depressed until the end of the transitional period, then gradually return to pre-EU Referendum levels thereafter. Free movement of labour continues to the end of the transitional period, with restrictions in movement after that. It is assumed that it remains desirable for EU workers to work in the UK, and that demand for construction operatives in the EU remains unchanged. GDP recovers slowly towards the end of the period as confidence returns.

The terms 'central', 'upside' and 'downside' reflect the impact of the scenarios on construction demand, rather than the outcome for construction tender prices. BCIS has assumed that 'No deal' is very unlikely to occur as one of the EU exit options.

The consequential effects of the three scenarios for tender prices follow:

□ Tender prices will rise by 4% over the first year of the forecast period, then rise to 28% above current prices by 3rd quarter 2022 (‘upside scenario’)

□ tender prices will fall by 2% over the first year, then recover to a rise of 19% above current levels by 3rd quarter 2022 (‘central forecast’); and

□ tender prices to fall by 9% over the first two years, with a recovery to 9% above current levels by 2nd quarter 2022 (‘downside scenario’).

BCIS is publishing the 'central' scenario as the forecast for the price and cost indices but it should be borne in mind that each forecast is equally possible.

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Appendix 11: BCIS All-in Tender Price Index

BCIS Allin TPI #101

Base date: 1985 mean = 100 | Updated: 22Jun2018 | #101

Percentage change

Date Index Sample On year On quarter On month 1Q 2017 298 27 8.4% 5.7% 2Q 2017 320 22 13.5% 7.4% 3Q 2017 312 Forecast 12 14.3% 2.5% 4Q 2017 321 Forecast 9 13.8% 2.9% 1Q 2018 317 Forecast 5 6.4% 1.2% 2Q 2018 315 Forecast 1.6% 0.6% 3Q 2018 314 Forecast 0.6% 0.3%

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Appendix 12: BCIS Economies of Scale Note (2016)

Economies of scale

Pricing levels on building contracts tend to fall as the size of the project increases. 25Oct2016 The latest BCIS Tender Price Study, based on project tender price indices analysed by contract sum, shows that pricing levels fall by as much as 20% between small contracts and multimillion pound schemes.

Compared to the mean value of projects in the study of £1.7million projects, pricing on small projects is 10% higher, while pricing on projects over £40million can be 10% lower.

Impact of contract value on pricing levels (Pricing level – log of project indices, BCIS Tender Price Study, Base £1.7million = 100)

Source: BCIS

The graph shows a clear relationship, with larger contracts having a lower price level than smaller contracts as would be expected from economies of scale. In reality the project cost varies for many reasons and the relationship is not clear until a large sample of schemes is analysed.

It is not clear that the relationship continues at either end of the scale. There is an insufficient sample of large projects to tell whether larger projects continue to gain from economies of scale with ever falling price levels; maintain similar pricing levels (prices 'level out'); or whether pricing levels rise because of additional complexity. However, the indications are that the average price level of larger projects does not fall significantly beyond about £40million while the smallest projects appear to be more variable (and therefore break the homogeneous assumption underlying the analysis).

The Contract Sum study is intended to measure the effect of contract size on price level. The contract sum was chosen rather than the floor area because it is always available from the BCIS indexing process and is a better measure of the total 'volume' of building work as it includes external works, etc.

The price level of individual building projects varies widely for all sorts of reasons. The BCIS Tender Price Studies show how, on average, price levels change relative to ten variables. There are many more variables that will affect the price level of a building project and so professional judgment should always be used when applying the study results. 1. Date – when it was built 2. Location – where it was built 3. Regional trend – interaction between where and when it was built 4. Selection of contractor competitive tender, negotiated, etc. 5. Contract sum – volume of work * 6. Building function – office, factory, hospital, etc. 7. Building height – number of storeys 8. Type of work – new build, refurbishment, etc. 9. Site working space 10. Site access

* Note: the volume of work affects the cost of a building directly but it also has an effect on the price levels of the work.

The Contract Sum study is based on a least squares linear regression with the natural logarithm of the adjusted project index as the dependant variable and the logarithm (base 10) of the contract sum (adjusted to 1985 prices) as the independent variable.

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Appendix 13: Residential Baseline Modelling

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Appendix 14: M4(2) Sensitivity Analysis

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Appendix 15: M4(3) Sensitivity Analysis a. Iteration 1: M4 (3) (a) applied to 10% of the dwellings, cost equivalent to £12,500 per dwelling:

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b. Iteration 2: M4 (3) (b) applied to 10% of the dwellings, cost equivalent £25,000 per dwelling

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c. Iteration 3: Mix of M4 (3) (a) and M4 (3) (b) applied to 10% of the dwellings, cost equivalent £18,750 per dwelling

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d. Iteration 4: M4 (3) (a) applied to 5% of the dwellings, cost equivalent to £12,500 per dwelling

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e. Iteration 5: M4 (3) (b) applied to 5% of the dwellings, cost equivalent £25,000 per dwelling

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f. Iteration 6: Mix of M4 (3) (a) and M4 (3) (b) applied to 5% of the dwellings, cost equivalent £18,750 per dwelling

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Appendix 16: Affordable Housing Sensitivity Analysis

a. 5% affordable rent 5% shared ownership 5% discounted market sale

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b. 5% affordable rent 10% discounted market sale

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c. 5% affordable rent 10% shared ownership

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d. 15% discounted market sale

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e. 15% shared ownership

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f. Affordable Rent and off-site contributions

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Appendix 17: Low Cost Developer Sensitivity Analysis

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Appendix 18: -5% Market Value Reduction Sensitivity Analysis

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Appendix 19: Build to Rent / Private Rented Sector Sensitivity Analysis

Value Av sq m Av Rent AR Rent Net S106 per Profit % BLV (£ per Residual Appraisal Surplus % Type Land Flats AH % Yield M4 (2) BLV Viable? Area per flat per flat p.a. 80% MV deduction dwelling on cost gross Ha ) Land Value surplus of BLV Urban / 61 sq m AH High 300 15.00% 61.10 £11,000 £ 8,800 25% 5.50% £ 2,000 £ 150,000 10.00% £ 2,100,000 £ 840,000 £ 313,661 -£ 526,339 -62.66% UNVIABLE suburban 61 sq m No Urban / High 300 0.00% 61.10 £11,000 £ 8,800 25% 5.50% £ 2,000 £ 150,000 10.00% £ 2,100,000 £ 840,000 £ 1,348,261 £ 508,261 60.51% VIABLE AH suburban Urban / 50 sq m AH High 300 15.00% 50.00 £9,125 £ 7,300 25% 5.50% £ 2,000 £ 127,500 10.00% £ 2,100,000 £ 840,000 £ 471,823 -£ 368,177 -43.83% UNVIABLE suburban 50 sqm No Urban / High 300 0.00% 50.00 £9,125 £ 7,300 25% 5.50% £ 2,000 £ 150,000 10.00% £ 2,100,000 £ 840,000 £ 1,330,229 £ 490,229 58.36% VIABLE AH suburban Urban / 40 sq m AH High 300 15.00% 40.00 £7,400 £ 5,920 25% 5.50% £ 2,000 £ 127,500 10.00% £ 2,100,000 £ 840,000 £ 503,713 -£ 336,287 -40.03% UNVIABLE suburban 40 sq m No Urban / High 300 0.00% 40.00 £7,400 £ 5,920 25% 5.50% £ 2,000 £ 150,000 10.00% £ 2,100,000 £ 840,000 £ 1,199,725 £ 359,725 42.82% VIABLE AH suburban

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Appendix 20: Commercial Baseline Modelling

Gross area Residual Non-residential Value area Sq m CIL Rate BLV (per Ha) BLV Viable? (Ha) land value Retail warehouse High 1,000 0.30 £ 50 £ 2,100,000 £ 630,000 £ 814,599 VIABLE Retail warehouse Medium 1,000 0.30 £ 50 £ 900,000 £ 270,000 £ 639,201 VIABLE Retail warehouse Low 1,000 0.30 £ 50 £ 200,000 £ 60,000 £ 229,937 VIABLE B2 / B8 Industrial High 3,000 0.75 £ - £ 2,100,000 £ 1,575,000 -£ 90,079 UNVIABLE B2 / B8 Industrial Medium 3,000 0.75 £ - £ 900,000 £ 675,000 -£ 665,769 UNVIABLE B2 / B8 Industrial Low 3,000 0.75 £ - £ 200,000 £ 150,000 -£ 1,344,936 UNVIABLE Supermarket - discount 1,510 0.76 £ 10 £ 200,000 £ 152,000 £ 158,028 VIABLE Supermarket High 5,000 2.00 £ 10 £ 2,100,000 £ 4,200,000 £ 4,546,070 VIABLE Supermarket Medium 5,000 2.00 £ 10 £ 900,000 £ 1,800,000 £ 3,282,471 VIABLE Supermarket Low 5,000 2.00 £ 10 £ 200,000 £ 400,000 £ 439,375 VIABLE A1, A2, A3, A4, A5 Small retail High 279 0.03 £ 30 £ 2,100,000 £ 63,000 £ 320,696 VIABLE A1, A2, A3, A4, A5 Small retail Medium 279 0.03 £ - £ 900,000 £ 27,000 -£ 120,762 UNVIABLE A1, A2, A3, A4, A5 Small retail Low 279 0.03 £ - £ 200,000 £ 6,000 -£ 192,275 UNVIABLE A1, A2, A3, A4, A5 Small retail Newcastle Central Area 279 0.03 £ - £ 1,500,000 £ 1,452,334 UNVIABLE B1 Offices High 2,000 0.25 £ - £ 2,100,000 £ 525,000 -£ 1,321,517 UNVIABLE B1 Offices Medium 2,000 0.25 £ - £ 900,000 £ 225,000 -£ 2,595,897 UNVIABLE B1 Offices Low 2,000 0.25 £ - £ 200,000 £ 50,000 -£ 2,969,723 UNVIABLE B1 Offices Newcastle Central Area 4,000 0.10 £ - £ 2,000,000 -£ 112,362 UNVIABLE Hotel - Out of centre 120 rooms High 3,600 0.50 £ 40 £ 2,100,000 £ - £ 2,096,021 VIABLE Hotel - Out of centre 120 rooms Medium 3,600 0.50 £ - £ 900,000 £ - -£ 69,205 UNVIABLE Hotel - Out of centre 120 rooms Low 3,600 0.50 £ - £ 200,000 £ - -£ 69,205 UNVIABLE Hotel - 180 rooms Newcastle Central Area 8,000 0.40 £ - £ 4,000,000 £ 3,895,198 UNVIABLE Student accommodation - 530 rooms High 16,266 0.41 £ 50 £ 2,100,000 £ - £ 2,444,037 VIABLE Student accommodation - 530 rooms Medium 16,266 0.41 £ - £ 900,000 £ - -£12,591,337 UNVIABLE Student accommodation - 530 rooms Low 16,266 0.41 £ - £ 200,000 £ - -£16,675,226 UNVIABLE Student accommodation - 530 rooms Newcastle Central Area 16,266 0.41 £ 50 £ 2,000,000 £ 2,444,037 VIABLE

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Appendix 21 Newcastle City Council Standardised Viability Appraisal Inputs The following assumptions have been derived in the published Newcastle and Gateshead Local Plan Viability and Deliverability Report (Sept. 2018) as reasonable strategic assumptions in the City. Base: 2Q2018, Subject to Indexation Viability Assumptions Summary – Residential Development Site Types Type 1 - 1 dwellings Type 2 - 15 dwellings Type 3 - 50 dwellings Type 4 - 100 dwellings Type 5 - 100 apartments Type 6 - 40 sheltered housing / assisted living flats

Gross areas (Ha) Type 1 - 0.03 to 0.04Ha Type 2 - 0.30 to 0.33Ha Type 3 - 1.33 to 1.39Ha Type 4 - 3.33 to 4.00Ha Type 5 - 0.25Ha Type 6 - 0.57Ha

Net areas (Ha) Type 1 - 0.03 to 0.04Ha (100% of gross area) Type 2 - 0.30 to 0.33Ha (100% of gross area) Type 3 - 1.20 to 1.25Ha (90% of gross area) Type 4 - 2.50 to 3.00Ha (75% of gross area) Type 5 - 0.25Ha (100% of gross area) Type 6 - 0.40Ha (70% of gross area)

Units per net Ha Type 2 - 45 to 50 Type 3 - 40 to 42 Type 4 - 33 to 40 Type 5 - 400 Type 6 - 100

Dwelling size (based on Number Low High (sq NDSS NDSS averages) of beds (sq m) m) Average (sq m)

1b flat 39 50 44.50

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2b flat 61 70 65.50

3b flat 74 95 84.50

2 70 79 74.50

3 84 108 96.00

4 97 130 113.50

Density Value 15 50 100 100 Assisted area units units units flats Living

High 4,173 3,508 2,880 22,280 4,560 High 4,055 3,456 2,880 - 4,560 mid Mid 3,806 3,328 2,813 - 4,560 Low 3,920 3,332 3,270 - 4,560 mid Low 3,920 3,299 3,270 - 4,560

The above shows density on a sq m per net Ha basis

Residential Values and Evidence of local market values/capitalised rental income Costs and costs or alternatively use of averages below: Revenue – market value High area - £3,050 psm High mid area - £2,550 psm Mid area - £2,150 psm Low-mid area - £1,875 psm Low area - £1,700 psm

25% increase for sheltered housing / assisted living flats

Revenue – affordable Affordable Rent – 55% of MV housing Shared ownership / intermediate – 70% of MV Discounted market sale – 80% of MV

Plot construction costs High area – BCIS median Low, low mid & mid areas – BCIS lower quartile (£1,097 psm) ( assume this is the low cost model) High mid area – in between lower quartile & median

For single dwellings, flatted schemes and assisted living the BCIS median has been applied

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See Values Profile Areas map overleaf Externals, Contingency & Total 25% of plot construction costs professional fees

Abnormals- additional site £150,000 per net Ha specific abnormals would have been deducted from Increased to £300,000 per net Ha for all city centre locations the benchmark land value Marketing and sales fees 15 or more dwellings – 3% of revenue Sub 15 dwellings – 1.5% of revenue

Legal fees Market value dwellings – £600 per unit Affordable housing – s £300 per unit

Finance Debit rate – 6.5% Credit rate – 3% Build rates Type 1 - 9 months Type 2 - 12 months Type 3 - 24 months Type 4 - 36 months Type 5 - 15 months Type 6 - 12 months

Sales rates per annum Type 1 - 1 p.a. Type 2 - 15 p.a. Type 3 - 25 p.a. Type 4 - 33 p.a. Type 5 - Sold as a single entity to a single investor Type 6 - 25 p.a.

Developer Profit 20% on revenue for market value dwellings and 6% on revenue for affordable dwellings

Decreased to 10% on revenue for Built to Rent (i.e. Type 5)

Zero profit for single dwellings (i.e. Type 1) on the basis of an owner occupier developer

Benchmark Land Value- Value area Urban / sub Non-urban (£ / should be site specific or urban (£ / Ha) Ha) no higher than these averages High £2,100,000 £530,000

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High mid £1,600,000 £480,000

Mid £900,000 £420,000

Low mid £500,000 £380,000

Low £200,000 £360,000

Section 106 contributions Urban / suburban – £2,000 per dwelling in Newcastle (average allowance) Non-urban – £4,000 per dwelling in Newcastle

CIL Urban / suburban – High area £30 per sq m Non-urban – High mid area £60 per sq m

M4 (2) standard Average £2,000 per dwelling

Viability Assumptions Summary – Non-residential Development

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Evidence of local market values/capitalised rental income and costs or alternatively use of averages below: Non-residential revenue Retail warehouse – £110 to £160psm, yield 6.5% allowances A1-A5 units – £60 to £645psm, yields 7.5% to 8.5% Supermarket – £150 to £215psm, yield 6% Discount supermarket – £150psm, yield 6% Offices – £86 to 226psm, yield 7% to 8.5% Industrial – £40 to £70psm, yields 7.5% to 10% Hotels – £65k to £145k capital per room Student – £2,856 to £5,916 per room p.a., yields 7.5% to 8.5%

Rent free Retail warehouse – 9 months A1-A5 units – 12 months Supermarket – 15 months Discount supermarket – 12 months Offices – 10 months Industrial – 10 months

Build costs BCIS median

Except Hotels in Newcastle Central Area, where the BCIS upper quartile has been applied

Externals Retail warehouse – 15% of BCIS A1-A5 units – 10% of BCIS Supermarket – 15% of BCIS Discount supermarket – 5% of BCIS Offices – 15% of BCIS Industrial – 10% of BCIS Hotels – 5% of BCIS Student – 5% of BCIS

Professional fees 10% of BCIS

Contingency 5% of BCIS

Abnormals- additional site £150,000 per net Ha specific abnormals would

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have been deducted from the £300,000 per net Ha in Newcastle Central Area benchmark land value Marketing and sales fee 1% of revenue

Letting fee 10% of Yr 1 income

Legals Sales – 0.25% on revenue Lettings – 5% of Yr 1 income

Developer profit 15% on cost

Benchmark Land Value - Urban/suburban should be site specific or no High £2.1million per net Ha higher than these averages Medium £900,000 per net Ha Low £200,000 per net Ha

Non-urban High £530,000 per net Ha Medium £420,000 per net Ha Low £360,000 per net Ha