Roger Tym & Partners t: 0161 245 8900 Oxford Place, 61 Oxford Street f: 0161 245 8901 Manchester e: [email protected] M1 6EQ w: www.tymconsult.com Carlisle City Council Carlisle Affordable Housing Economic Viability Assessment (AHEVA) Final Report January 2013 Carlisle AHEVA Peter Brett Associates LLP disclaims any responsibility to the Client and others in respect of any matters outside the scope of this report. This report has been prepared with reasonable skill, care and diligence within the terms of the Contract with the Client and generally in accordance with the appropriate ACE Agreement and taking account of the manpower, resources, investigations and testing devoted to it by agreement with the Client. This report is confidential to the Client and Peter Brett Associates LLP accepts no responsibility of whatsoever nature to third parties to whom this report or any part thereof is made known. Any such party relies upon the report at their own risk. © Peter Brett Associates LLP 2013 27012-002 Carlisle AHEVA CONTENTS 1 INTRODUCTION ................................................................................................................. 1 2 METHODOLOGY ................................................................................................................ 3 What is the Traditional Residual Method? ........................................................................... 3 Analysis of Cost and Values ................................................................................................ 3 Site Selection ...................................................................................................................... 4 Assessment of Viability ........................................................................................................ 4 3 RESIDENTIAL MARKET ASSESSMENT ............................................................................ 7 Analysis of the Housing Market ........................................................................................... 7 Residential Selling Prices – Cumbria ................................................................................. 10 Sales Volume – Cumbria Level.......................................................................................... 11 Carlisle – Housing Market .................................................................................................. 12 Estate Agent Consultation ................................................................................................. 16 Residential Land Values .................................................................................................... 18 4 COST AND VALUE ASSUMPTIONS USED FOR OUR DEVELOPMENT APPRAISALS .. 21 Applying Values Across the Study Area ............................................................................. 21 Affordable Housing Values ................................................................................................ 22 Housing Mix ....................................................................................................................... 25 Unit Build Costs ................................................................................................................. 26 External Costs ................................................................................................................... 26 Professional Fees .............................................................................................................. 26 Site Variables .................................................................................................................... 26 Contingency ...................................................................................................................... 28 Section 106 ....................................................................................................................... 28 Marketing Costs ................................................................................................................ 29 Finance Costs ................................................................................................................... 29 Timescales ........................................................................................................................ 29 Developer’s Profit .............................................................................................................. 29 Benchmark Residual Land Value ....................................................................................... 29 5 FINDINGS FROM OUR VIABILITY ASSESSMENTS ........................................................ 31 6 CONCLUSION AND RECOMMENDATION ....................................................................... 45 Carlisle AHEVA Recommendation .............................................................................................................. 47 APPENDICES Appendix 1 – Analysis of SHLAA Appendix 2 – Sample of 50 Sites Tested for Viability Appendix 3 – Analysis of Section 106 Obligations Agreed Carlisle AHEVA 1 INTRODUCTION 1.1 Roger Tym & Partners is instructed by Carlisle City Council to undertake a bespoke Affordable Housing Economic Viability Assessment (AHEVA), focusing on a representative sample of sites. 1.2 The purpose of the assessment is to establish the appropriate level of affordable housing to be required on sites across the District 1. The study seeks to satisfy the requirement originally established in PPS3 that local planning authorities’ affordable housing targets should be based on an assessment of the likely economic viability of land for housing within their area. The subsequent case of Persimmon Homes & Others v Blyth Valley Borough Council (2008) reaffirmed the importance of affordable housing targets being based on proper evidence. 1.3 The need to take economic viability into account is reinforced in the National Planning Policy Framework (NPPF), which advises at paragraph 173 that: ‘…sites and the scale of development identified in the plan should not be subject to such a scale of obligations and policy burdens that their ability to be developed viably is threatened. To ensure viability, the costs of any requirements likely to be applied to development, such as requirements for affordable housing, standards, infrastructure contributions or other requirements should, when taking account of the normal cost of development and mitigation, provide competitive returns to a willing land owner and willing developer to enable the development to be deliverable.’ 1.4 Our report is structured as follows: ° Section 2 describes the methodology that we employed when undertaking the AHEVA. ° Section 3 provides our assessment of the various residential markets in Carlisle District, to provide a reference for the remainder of the study. ° Section 4 outlines the cost and value assumptions that we used for our development appraisals. ° Section 5 provides the findings from our viability assessments. ° Section 6 contains our advice in relation to formulating policy solutions to ensure the delivery of sufficient affordable housing. ° Section 7 provides a summary of our findings and our conclusions/advice. 1 Any references on our report to ‘the District’ or ‘Carlisle District’ relate to the whole local authority area of Carlisle (including Brampton, Longtown, Dalston and the surrounding rural areas). Any reference to ‘the City’ or ‘Carlisle City’ relate to the settlement of Carlisle itself. Final Report | January 2013 1 Carlisle AHEVA 2 METHODOLOGY 2.1 To assess affordable housing viability across the Carlisle District we have undertaken a traditional residual appraisal. This approach is widely recognised as the preferred method 2 to test viability. What is the Traditional Residual Method? 2.2 In simple terms, the residual method works on the basis that a developer knows the end value of the scheme and knows the development costs (construction, interest and developer’s profit). Through deducting the total costs from the end value the developer knows what it can bid for the land. If the resulting land value is at a level attractive to the landowner, the owner will sell. In simple terms the formula is expressed as: Net Development Value Land Value = Minus Development Costs (construction, interest and developer’s profit) 2.3 As a large number of sites have been tested for this study, across a number of differing scenarios, a bespoke financial model using Microsoft Excel has been created to run the development appraisals. This approach provides sufficient flexibility to undertake testing of various scenarios and immediately ascertain the impact it has on the sample of sites. Analysis of Cost and Values 2.4 To ensure the development appraisal for each of the sites is sufficiently robust we have used market data to inform the costs and value inputs. 2.5 Build costs have been derived from Build Cost Information Service (BCIS), which is an industry recognised source for average costs. In addition to the unit build costs, allowances have been made for existing land type, external works, professional fees, flood risk, marketing, contingency, finance and developer’s profit. 2.6 Our assessment of values is based upon market analysis of a range of industry recognised published sources e.g. Land Registry, Nationwide, Rightmove and Zoopla. The sale value analysis has been supplemented with telephone consultation with local estate agents to provide a ‘live’ update of local sale prices. Creating Value Zones 2.7 The Carlisle housing