North Northamptonshire Joint Core Strategy Pre-Submission Plan Draft Viability Study Update Prepared for North Northamptonshire Joint Planning Unit January 2015 Contents 1 Executive Summary 4 2 Introduction 8 3 Methodology and appraisal inputs 14 4 Development appraisals 17 5 Appraisal outputs 30 6 Assessment of the results 34 7 Conclusions and recommendations 98 Appendices Appendix 1 - Schedule of changes in policies (between Draft JCS 2012 and Pre-submission JCS 2014) Appendix 2 - Updated viability assumptions inputs Appendix 3 - Updated sales values in NNJPU area Appendix 4 - Corby BC Appraisal results of social rent and current costs and values Appendix 5 - East Northamptonshire DC Appraisal results of social rent and current costs and values Appendix 6 - Kettering BC Appraisal results of social rent and current costs and values Appendix 7 - BC Wellingborough Appraisal results of social rent and current costs and values Appendix 8 - Corby BC Appraisal results of social rent and with 19.3% growth in values and 10.2% growth in costs) Appendix 9 - East Northamptonshire DC Appraisal results of social rent and with 19.3% growth in values and 10.2% growth in costs) Appendix 10 - Kettering BC Appraisal results of social rent and with 19.3% growth in values and 10.2% growth in costs) Appendix 11 - BC Wellingborough Appraisal results of social rent and with 19.3% growth in values and 10.2% growth in costs) Appendix 12 - Corby BC Appraisal results of Affordable Rent and current costs and values Appendix 13 - East Northamptonshire DC Appraisal results of Affordable Rent and current costs and values Appendix 14 - Kettering BC Appraisal results of Affordable Rent and current costs and values Appendix 15 - BC Wellingborough Appraisal results of Affordable Rent and current costs and values Appendix 16 - Corby BC Appraisal results of Affordable Rent and with 19.3% growth in values and 10.2% growth in costs) Appendix 17 - East Northamptonshire DC Appraisal results of Affordable Rent and with 19.3% growth in values and 10.2% growth in costs) Appendix 18 - Kettering BC Appraisal results of Affordable Rent and with 19.3% growth in values and 10.2% growth in costs) Appendix 19 - BC Wellingborough Appraisal results of Affordable Rent and with 19.3% growth in values and 10.2% growth in costs) Contact details: Anthony Lee MRTPI MRICS Senior Director – Development Consulting BNP Paribas Real Estate 5 Aldermanbury Square London EC2V 7BP Tel: 020 7338 4061 Fax: 020 7404 2028 Email: [email protected] 1 Executive Summary 1.1 This report provides an update on the Draft Joint Core Strategy Viability Study produced by BNP Paribas Real Estate on behalf of the North Northamptonshire Joint Planning Unit (NNJPU) (published on 11 November 2014). This report tests the ability of a range of development types throughout the NNJPU area (formed of a partnership of the boroughs/districts of Corby, East Northamptonshire, Kettering and Wellingborough) to viably meet planning policy requirements of the Pre-submission Draft North Northamptonshire Joint Core Strategy (JCS). The study tests the cumulative impact of the emerging draft JCS policies, in line with the requirements of the National Planning Policy Framework (‘NPPF’) and the Local Housing Delivery Group guidance ‘Viability Testing Local Plans: Advice for planning practitioners’ (June 2012). Methodology 1.2 The study methodology compares the residual land values of a range of development typologies on sites throughout the area to their value in current use (plus a premium), herein after referred to as ‘benchmark land value’. If a development incorporating the emerging JCS policy requirements generates a higher residual land value than the benchmark land value, then it can be judged that these policy requirements will not adversely impact upon viability. 1.3 The study utilises the residual land value method of calculating the value of each development typology. This method is used by developers when determining how much to bid for land and involves calculating the value of the completed scheme and deducting development costs (construction, fees, finance, sustainability requirements, emerging Community Infrastructure Levy (‘CIL’)) and developer’s profit. The residual amount is the sum left after these costs have been deducted from the value of the development, and guides a developer in determining an appropriate offer price for the site. 1.4 The housing and commercial property markets are inherently cyclical and the NNJPU authorities are looking to test their proposed rates of CIL and emerging policy at a time when the market is recovering after a severe recession. Residential land values in the NNJPU area were 16.72%1 lower than the November 2007 peak in October 2012, when the CIL Draft Charging Schedule Viability Studies for the NNJPU Councils were published2. Values in the subsequent two years to November 2014 increased by circa 11%1 and they are currently circa 7.45%1 lower than the peak November 2007 values. 1.5 Forecasts for the medium term predict growth in mainstream East Midlands markets. In this regard we have tested the impact of this by running a sensitivity analysis which varies the base sales values and build costs, with values increasing by 19.3% and costs by 10.2%3. This reflects the growth predicted by Savills4 and a corresponding allowance considered to be appropriate for cost inflation based on BCIS Build Costs Index over the same period. This analysis is indicative only, but is intended to assist the NNJPU in understanding the ability of developments to absorb its requirements both in today’s terms but also in the future. 1 As identified from the Land Registry’s online House Price Index database (http://www.landregistry.gov.uk/public/house-prices-and-sales/search-the-index) 2 Upon which the Local Plan viability inputs were based. 3 Given that the forecast for the medium term is for growth in the area, it has not been deemed necessary to test a fall in sales values. 4 Savills Residential Property Focus Report Q4 2014 (November 2014) 4 Key findings 1.6 The key findings of the study are as follows: ■ The results of this study are reflective of current market conditions, which have been updated since the previous study published in November 2014. This update study has identified that the property market in the NNJPU area has improved to a degree and the outlook is identified as being likely to further improve over the medium term5. The report also reflects the identified increase in build costs over this period. A key change to costs in this assessment is the JPU’s change of approach to their sustainability policy in response to the Government’s Housing Standards Review, which has reduced the pressure on the viability and hence deliverability of sites across the NNJPU area. Further, the further improvement in the market expected, along with likely future reductions in the costs of delivering sustainable development will further improve the deliverability of sites across the NNJPU area and consequently the NNJPU’s policies. It is therefore important that the NNJPU keeps the viability situation under review so that levels of CIL and other policy requirements can be adjusted to reflect any future changes. ■ Some development typologies tested were unviable in certain circumstances due to market factors, rather than the impact of the JCS policy requirements and standards. These schemes are identified in the appraisals as being unviable at 0% affordable housing and base build costs. These schemes will not come forward until changes in market conditions and their current unviable status should not be taken as an indication that the JCS requirements cannot be accommodated. We are aware that the NNJPU planning authorities have seen developments, similar to those identified within the study as being unviable, come forward in the NNJPU area over the last five years. In this regard we would highlight that on a site specific level there will be a range of factors determining whether a developer brings the site forward or not. These include but are not limited to the developer accepting a lower profit level or achieving lower build costs or factoring in growth to revenue. ■ It is noted that the purpose of this viability study is to support the NNJPU’s emerging policies through Examination in Public by providing evidence to show that the requirements set out within the NPPF are met. That is, that the policy requirements for development set out within the plan do not threaten the ability of the sites and scale of that development to be developed viably. As an area wide study this assessment makes overall judgements as to viability in the NNJPU area and does not account for individual site circumstances and in this regard should not be relied upon for individual site applications. Section 2 of the Local Housing Delivery Group guidance, identifies that: “The role of the test is not to give a precise answer as to the viability of every development likely to take place during the plan period. No assessment could realistically provide this level of detail. Some site-specific tests are still likely to be required at the development management stage. Rather, it is to provide high level assurance that the policies within the plan are set in a way that is compatible with the likely economic viability of development needed to deliver the plan.” 5 Long term in planning refers to ten years plus whilst a medium term reflects a five to ten year period. Current market forecasts cover a period of five years to 2019 and are predicting growth, which has been seen to continue to increase with each subsequent report update. 5 ■ In many cases, schemes can accommodate the proposed JCS affordable housing requirement at a level somewhere between 20% to 40% without cross subsidy through Homes and Communities Agency (HCA) grants.