P04-Gateshead-And-Newcastle-Viability-And-Deliverability-Report-February-2014-Annex
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Gateshead and Newcastle CIL 2016 P04 Gateshead and Newcastle Viability and Deliverability Report (February 2014) Annex Update February 2016 1 P04 Contents 1. Purpose of Annex Update Report 2. Update-National Policy Guidance and Best Practice in Viability 3. Update- Viability Methodology and Assumptions 3.1 Methodology 3.2 Viability Assumptions Review 4. Update -Viability Results 5. Update-Delivery Appendices Appendix 1 Residential and Commercial Value Profile Maps (Newcastle City Council and Gateshead Council PDCS (2015) ), Minor Green Belt Changes and Viability Data Appendix 2 Notes of CIL Consultation Events (2012-13) Appendix 3 Building Cost Information Service Data Extracts Appendix 4 House Values, House Sales Survey Appendix 5 Known Land and Property Transactions Data Appendix 6 Commercial Sales Data Appendix 7 Publically Available Evidence (Residential and Commercial) Appendix 8 Residential and Non Residential Appraisals Appendix 9 DTZ Market Assessment Letter Appendix 10 Property Week Article (18 September 2015) Appendix 11 Post Draft Charging Schedule Submission Notes Updates since DCS version (October 2015) include: • Additional Appendix 11 • Updated narrative on residential (environmental) costs at section 3.2 D) • Additional data for Gateshead Central Area and Newcastle Central Area • Appendix 8 Small Retail Appraisal for Newcastle City Centre • Formatting 2 P04 Report Authors This report has been prepared by the Property Services Sections of Newcastle City Council and Gateshead Council. The lead author is Paul Scaplehorn BSc(Hons) MRICS, Head of Strategic Property at Newcastle City Council. The main author has 17 years post-qualification experience in commercial and residential development in both central London and Newcastle upon Tyne. This has included the preparation of detailed development appraisals and acting on the behalf of Local Planning Authorities in the negotiation of viability appraisals connected with s.106 agreements. The Councils have consulted the leading international property consultancy DTZ with regard to market evidence set out in this report and with regards to certain high level appraisal variables. 1. Purpose of Annex Update Report 1.1 This Annex Update report is a key document prepared as appropriate evidence to support the progress of the community infrastructure levies in Gateshead and Newcastle. 1.2 The Gateshead and Newcastle Core Strategy and Urban Core Plan (the Plan) is the strategy for growth to 2030 for Gateshead and Newcastle and was adopted in March 2015. This Annex Update report has been prepared to supplement and update Viability and Deliverability Report (February 2014) (V&D Report) which formed a part of the evidence library for the Plan examination. The V&D Report set out the Councils’ approach and evidence on viability and delivery matters to support the Plan and its examination. The main V&D Report also elaborated on the viability methodology approach taken in the Newcastle Gateshead Viability Assessment (VA 1) (May 2012), published alongside the CIL PDCSs (2012)- it considered matters raised as part of early stakeholder engagement, reviewed the results of site testing and policy cost implications, and concluded with evidence of our ability to deliver our proposals and policies. See the evidence library for the chronology of documents prepared for consultation. 1.3 This Annex Update therefore builds on and refers back to these 2 key viability reports (V&D Report and VA 1) as part of a continuum of public engagement and iteration of viability assessment. Where changes in viability guidance and best practice have occurred this forms part of this update. Following the examination of the Plan and subsequent PDCS consultation (2015) updates to stakeholder engagement, the methodology and approach, and of course updates to costs/values and viability assumptions are all considered in this Annex Update. Section 4.0 reviews the latest viability results. 3 P04 2. Update-National Policy Guidance and Best Practice in Viability The national policy and legislative context for viability assessment is set out in section 2.0 of the main V&D report. At the time of writing the national planning practice guidance tool was published for consultation and was later finalised in March 2014. 2.1 National Planning Practice Guidance (PPG) was launched on 6 March 2014 to assist practitioners and provides guidance on the National Planning Policy Framework (March 2012). DCLG guidance on the community infrastructure levy is now also included with the PPG, along with general guidance on viability and specific guidance in relation to plan making and decision taking. Key principles of viability testing in plan making include: • An understanding of evidence based judgement, collaboration and a consistent approach with plan making • Evidence in plan making should be proportionate, underpinned by a broad understanding of viability with greater detail where necessary where viability may be an issue • Assessing the viability of plans does not require individual testing of every site or assurance that individual sites are viable; site typologies may be used to determine viability at policy level • Plan makers should consider a range of costs on development, plan for a viability buffer and use current costs and values • Consideration should be given to policies and setting the CIL to promote the viability of brownfield sites • Viability assessments should be proportionate, but reflect the range of different development, both residential and commercial, likely to come forward in an area • Gross development value should be based on comparable, market information • A broad assessment of costs is required based on evidence of local market conditions, taking into account: inc. build costs (Building Cost Information Service); known abnormals; infrastructure costs; emerging policy and CIL cumulative costs. • Land value should reflect emerging policy requirements, provide a competitive return to willing developers and land owners and be informed by comparable, market based evidence wherever possible. Where transacted bids are significantly above the market norm, they should not be used as part of this exercise. See PPG on line tool at http://planningguidance.planningportal.gov.uk/Paragraph: 001-009 Reference ID: 25-001-20140612; Paragraph: 001-015 Reference ID: 10-001- 20140306 Two further research reports have also been published that will be referred to in section 3.0 of this Annex Update. They are: 2.2 DCLG Land Value Estimates for Policy Appraisal (February 2015). All land valuations were provided by the Valuation Office Agency using a consistent methodology and all figures are as of 1 January 2014. For residential valuation it assumed that each site is 1 hectare in area, of regular shape, with services provided up to the boundary, without contamination or abnormal development costs, not in an 4 P04 underground mining area, with road frontage, without risk of flooding, with planning permission granted. The site will have a net developable area equal to 80% of the gross area for a development of 35 two storey, 2/3/4 bed dwellings with a total floor area of 3,150 square metres. The values listed by national averages and by local authority include the following. National averages include: Average industrial land value estimates, £482,000 per hectare Average agricultural land value estimates, £21,000 per hectare Local Authority averages, include: Neighbouring authorities Durham £1,053,000 Northumberland £1,725,000 North Tyneside £1,282,000 South Tyneside £651,000 Other areas in the North East Stockton-on-Tees £1,162,000 Sunderland £1,315,000 Newcastle-upon-Tyne £1,188,000 Gateshead £404,000 The differences between 2014 Gateshead and Newcastle valuation averages can be largely explained by wide variations within the authority areas. It is also worth noting that the recent review of house prices indicate residential values still apply across the respective residential value bands. CIL requires an area based approach involving a broad test of viability across the area. Whilst DCLG land value estimates are a useful indicator it will not be applicable across all parts of the two local authorities. 2.3 RICS Research Paper, Financial Viability Appraisal in Planning Decisions: Theory and Practice (April 2015) The aim of the research paper was to formulate consistent approaches to land valuation within site specific development viability appraisal based on a critical evaluation of the theory and practice of appraisal. The paper draws from research on case studies where disputes have prevailed on viability issues concerning the level of planning obligations. The paper examined various approaches to determining land value and supports the view that the use of historic purchase price is flawed as it attempts to transfer one of the primary risks of development, the changes in market state and its impact on costs and values within the development, to the community. The risk-adjusted rate of return already rewards developers for taking these risks. 5 P04 2.4 2015 Summer Budget Statement On 8 July 2015 the Government Budget pledged the following of relevance to the progress of CIL rate setting: • Proposals for planning for starter homes - note the detail of the proposals has yet to be published; • Thresholds for seeking planning obligations have been rescinded from NPPG; • Changes to national environmental standards for housing have been clarified ( see build cost assumptions in section 3); • Affordable rents assumed for registered