PINS Reference APP/V5570/A/14/2227656 Rebuttal Evidence Robert Fourt BSc (Hons) MSc FRICS Land at: Former Territorial Army Centre 65-69 Parkhurst Road, London, N7 London Borough of Islington On behalf of: Parkhurst Road Limited In response to Proof of Evidence for Public Inquiry Commencing on 14 July 2015 prepared by Andrew Jones BSc MRICS July 2015 72 Welbeck Street London W1G 0AY Tel. +44 (0)20 7493 3338 © copyright reserved 2015 Gerald Eve LLP www.geraldeve.com Contents Page 1 Introduction 3 2 Determining Site Value 4 3 Approach to affordable housing 11 4 RICS Knowledge Provision 12 5 Other Issues 13 6 Statement of Truth and Declaration 16 Appendix 1 – RICS Valuation Information Paper 12 Appendix 2 – King Street Appeal Decision Appendix 3 – Factors determining Site Value Appendix 4 – Savills Planning Note on AMR Data Appendix 5 – Urban Land Prices under Uncertainty by Sheridan Titman (Paper from The American Economic Review - June 1985) Appendix 6 – RICS Knowledge Provision Definitions Appendix 7 – RICS Guidance Note – Valuation of individual new-build homes Appendix 8 – Officers Report to Development Control Committee in respect of 32 Lawn Road © copyright reserved 2015 Gerald Eve LLP Page 2 1 Introduction 1.1 I have been provided with the Proof of Evidence prepared by Andrew Jones BSc MRICS on behalf of London Borough of Islington, concerning affordable housing and financial viability matters by Parkhurst Road Limited. 1.2 I have been instructed to provide a response to Mr Jones’ Proof of Evidence. I refer in certain instances to my Proof of Evidence dated June 2015. 1.3 I set out my response under the following sections: 2. Determining Site Value; 3. Approach to affordable housing; 4. RICS Knowledge Provision; 5. Other Issues; and 6. Statement of Truth and Declaration. 1.4 Where I do not provide any specific comment in respect of any of the statements made by Mr Jones in his report it should not be taken that I agree or disagree with what has been said. © copyright reserved 2015 Gerald Eve LLP Page 3 2 Determining Site Value Residual Approach 2.1 Mr Jones does not appear to have arrived at an opinion of Site Value, but has instead used the residual appraisal approach (adopting my inputs and the Appeal Scheme) to suggest that the Site Value should be no more than £7.8 million. The approach Mr Jones adopts is first introduced at para 3.14 and referred to as a ‘Site Specific Residual Appraisal’. Mr Jones does not come to a conclusion on a suitable benchmark but simply uses the residual appraisals to generate a wide range of Site Value outputs, ranging from £3.8 million to £7.8 million (a range of 105%). 2.2 I note in following this approach that the inputs to Mr Jones’ appraisal are based on the inputs of my June 2014 FVA and the Appeal Scheme, Mr Jones does not independently test the Site Values he derives in order to assess whether they provide a competitive return to the willing seller. 2.3 The RICS Guidance Note ‘Financial Viability in Planning’ (RICS GN) outlines that residual appraisals are used to compare the output (either a residual value or a return) against a benchmark as opposed to informing an input (in this case Site Value). This is also consistent with Valuation Information Paper 12 produced by the RICS in respect of the valuation of development land which I attach as Appendix 1. 2.4 A central tenet of government policy and the RICS GN is that the determination of Site Value is separate from and different to the assessment of a specific scheme: “The guidance note separates the two key components of development: land delivery and viable development. This is in accordance with the NPPF” (RICS GN, p4). Mr Jones has intrinsically linked © copyright reserved 2015 Gerald Eve LLP Page 4 these two components. This is an error of approach. Appeal Decisions 2.5 At para 3.15 Mr Jones justifies the use of the residual method by reference to historic appeal decisions (paras 2.39 – 2.46). I note that the extracts Mr Jones quotes are from historic appeal decisions, which pre-date the NPPF, PPG and RICS GN. 2.6 A more recent (2014) appeal decision at King Street (APP/H5390/A/13/2209347) attached at Appendix 2, rejects using the residual appraisal method. In addition a landowner would not be incentivised to release their land for housing development given the market signals based on transactions elsewhere and upon the offers received for the appeal site. The Inspector in respect of the King Street appeal concludes that the residual approach for Site Value determination is limited and significantly out of kilter with other evidence provided, including valuations and offers for the site. Interpretation of the PPG 2.7 I note at para 2.6 Mr Jones’ interpretation of the PPG on viability and decision making, in relation to land value (paragraph 023) focuses on the need to reflect policy requirements and planning obligations without proper consideration given to the other two factors in the PPG i.e. providing a competitive return and being informed by comparable and market-based evidence. This is set out at paragraph 7.17 of my evidence. 2.8 In relation to the third factor, Mr Jones has not presented any independent market-based evidence to inform his opinion of Site Value at all. © copyright reserved 2015 Gerald Eve LLP Page 5 Market Evidence 2.9 At para 1.9 Mr Jones states that “there is no basis for a developer acting reasonably and in full knowledge of the relevant policy and guidance to offer in excess of £7,800,000 for this Site”. I disagree with this statement, given a variety of market evidence to the contrary including: • comparable land transactions; • an independent valuation of the Site; • an unconditional offer for the Site from a reputable developer active in the area; and • other bids that were received by the MoD when the Site was marketed for sale. 2.10 Mr Jones has not had regard to any “comparable, market based evidence as stated at para 2.6” in support of his assessment of Site Value, which is contrary to PPG and RICS GN. Indeed even applying Mr Jones’ singular residual approach different inputs could lead to a higher Site Value. 2.11 At para 3.51 Mr Jones states that “Gerald Eve sought in both its submissions to justify their assessment of Site Value solely by reference to limited analysis of other property transactions”. This is incorrect for the reasons given above and also contradicts Mr Jones’ at para 3.39 which states that I have also had regard to purchase price. Further to this my Proof of Evidence now also includes two additional elements; a third party valuation and an offer recently received for the site from a major housebuilder. Factors influencing the determination of Site Value 2.12 Mr Jones’ proof of evidence focuses on the impact of affordable housing levels on Site Value yet ignores the much broader range of considerations taken into account by the © copyright reserved 2015 Gerald Eve LLP Page 6 market in order to ensure a competitive return to a willing seller of land. I set out in Appendix 3 the factors, which a willing seller would take into account. This should not be viewed as an exhaustive list, but is indicative of the variety of factors that when considered as a whole will influence the level of Site Value. Hierarchy of Comparable Evidence 2.13 There are key similarities between the residential development land and the residential property markets, in particular the new-build market. The RICS have produced a Guidance Note on the Valuation of individual new-build homes (2009, 2nd edition) provided at Appendix 4; Section 9 of this document provides guidance on the weighting to be applied to market evidence. It is stated at paragraph 9.4.2 that “a hierarchy of evidence should be applied when weighting the evidence” and sets out a typical hierarchy representing “an acceptable ranking when faced with a wide range of evidence: • completed transactions of identical property for which full, accurate and verifiable information is available; • completed transactions of similar property for which full, accurate and verifiable information is available, including from the resale market; • completed transactions of similar property for which full data may not be available, but from which some reasonably reliable data may be obtained, including the resale market; • verifiable information from public sources and the media; • information from incomplete (but agreed) or unverifiable transactions of similar property • asking prices; • indices and other information derived from an automated valuation model (AVM).” © copyright reserved 2015 Gerald Eve LLP Page 7 2.14 It can be noted from the above that information derived from an automated valuation models, such as Argus Developer or Argus Valuation is considered to be at the bottom of the typical hierarchy of evidence, ranked below comparable transactions including those that are unverifiable. Notwithstanding this Mr Jones has used an automated valuation model as the sole method of determining Site Value and has inferred this is more appropriate than comparable transactional and other evidence. Gerald Eve Approach 2.15 At para 3.39 Mr Jones States that the December 2013 FVA Site Value of £13 million was “effectively reflecting the purchase price paid by the Appellant of £13.25m”. This is incorrect as the Site Value adopted reflects a range of evidence, including land transactions, the purchase price, under-bids received, the Market Value of the Site in its current use and the public sector approach to valuing underutilised sites and best consideration.