DONCASTER LOCAL PLAN VIABILITY TESTING Completed on behalf of Doncaster Metropolitan Borough Council by District Valuer Services (DVS) August 2016 EXECUTIVE SUMMARY 1. We have been commissioned by Doncaster Metropolitan Borough Council (“the Council”) to undertake an area wide viability study, specifically to consider the impact Council policies, as well as market fluctuations, have on scheme viability. 2. We have been instructed to assess a sample of hypothetical sites across the Borough, to include both residential schemes and non-residential developments (i.e. office, industrial, leisure developments etc.). 3. This assessment has been undertaken specifically for the purposes of a Whole Plan Viability Study. Its intention is to consider broad average viability appraisal inputs across the area of the study, and not set precedents for individual site viability assessments. In other words, the high level findings of this study should not be used to inform individual viability appraisals of ‘real’ development sites, which (as per the guidance) will need to be undertaken on a site by site basis reflecting the specific nature of the land in question. 4. This assessment has been undertaken in the context of the National Planning Policy Framework (“NPPF”) and Planning Practice Guidance (“PPG”), as well as the relevant professional guidance; “Viability Testing Local Plans” June 2012 by the Local Housing Delivery Group (“The Harman Review”) and “Financial viability in planning” August 2012 by the Royal Institution of Chartered Surveyors (RICS). 5. As part of the process, in line with the guidance, we have actively engaged with stakeholders to help ensure the assumptions adopted within the appraisal are realistic. In this case, we arranged a Stakeholder Workshop to allow an open forum discussion on viability matters. This was attended by a variety of key stakeholders; including land owners, agents, planning consultants, house builders, various representatives from different Council departments, as well as external public sector bodies. Following this workshop, a questionnaire was circulated to all identified stakeholders (including those unable to attend the workshop) seeking further details on their views on viability matters. The workshop and returned questionnaires formed part of the evidence base of the conclusions reached. 2 6. In accordance with the guidance, we have adopted the residual approach to site testing, which involves identifying the sales revenue for the completed scheme, and from this deducting the relevant costs of delivering the project (including the site value and developer’s profit). 7. As part of our review, we have adopted ‘sensitivity analysis’. This involves running a number of appraisal scenarios, varying key appraisal inputs to determine the impact these changes could have on the overall viability. This iteration process allows a more robust assessment of viability and is recommended within the guidance. 8. For the residential sites, we have concluded that land located within ‘high’ value areas are comfortably viable with the Council’s proposed affordable housing provision of 25%, together with various other draft S106 policies. However, for sites located within ‘medium’ and ‘low’ value areas, the viability pressure is greater. Having run various scenarios, for sites in medium and low value areas we have concluded that it is appropriate to adopt a reduced affordable housing provision of 15%. 9. For non-residential sites, we have concluded that supermarket, strategic warehouse, hotel and town centre shop schemes are all viable, even with the application of the Council’s draft policies. However, we have concluded that industrial and office schemes are currently unviable, even if the Council policies are removed. This is due to macro-economic factors affecting these market sectors. The only scheme type that sees a significant benefit in reducing the Council policies is non-strategic warehousing, which improves from being marginally viable to viable when the policies are reduced (or removed). 3 Summary Schedule – Key ‘Basic’ Viability Assumptions (Residential) Appraisal input Assumptions Gross to net ratio < 0.5 Ha 100% 0.5 – 2.0 Ha 85% 2.0 – 5.0 Ha 80% > 0.5 Ha 75% Scheme density 35 dwellings per net Ha Average house size 92.90 sq. m (1,000 sq. ft.) Affordable rent transfer values 45% of market value Shared ownership transfer values 67.5% of market value Starter homes discount 80% of market value Average ‘basic’ build cost BCIS lower quartile – £798 per sq. m BCIS median – £900 per sq. m External / site infrastructure costs 15% of the basic build cost Contingency Greenfield – 3% of basic build costs Brownfield – 5% of basic build costs ‘Abnormal’ development costs Greenfield – £100,000 per net Ha Brownfield (cleared) – £200,000 per net Ha Brownfield (occupied) – £300,000 per net Ha Professional fees Sub 20 dwellings – 8% of basic build costs / externals Over 20 dwellings – 6% of basic build costs / externals Marketing costs Sub 10 dwellings – 1.5% of sales revenue Over 10 dwellings – 3% of sales revenue Plus additional allowance for legal costs at £500 per dwelling Developer’s return Sub 10 dwellings – Market Value / Starter Homes 15% of sales revenue, Affordable rent / Shared ownership 8% of cost Over 10 dwellings – Market Value / Starter Homes 18.5% of sales revenue, Affordable rent / Shared ownership 8% of cost Finance costs Sub 10 dwellings – 7% debit Over 10 dwellings – 6% debit Average sales values Low value area – £1,500 per sq. m Medium value area – £1,750 per sq. m High value area – £2,250 per sq. m Threshold Land Values Greenfield Low value area – £197,680 / Ha (£80k / acre) Greenfield Medium value area – £271,810 / Ha (£110k / acre) 4 Greenfield High value area – £345,940 / Ha (£140k / acre) Brownfield (cleared) – £185,325 / Ha (£75k / acre) Brownfield (occupied) – £370,650 / Ha (£150k / acre) Summary Schedule – Key ‘Basic’ Viability Assumptions (Non-Residential) Appraisal input Assumptions Gross to net ratio Hotel / town centre shop 100% Strategic warehouse 90% Industrial / non-strategic warehouse 80% Supermarket / offices 75% Type of disposal Speculative – Industrial / office / town centre shop Pre-let – Hotel / warehousing / supermarket Lease length for tenant 15 years Rent free period 12 months Average ‘basic’ build cost - Strategic warehouse £446 per sq. m - Non-strategic warehouse £446 per sq. m - Industrial (2,000 to 10,000 sq. m) £446 per sq. m - Supermarket (small and large) £951 per sq. m - Office 500 sq. m £1,228 per sq. m - Office 200 sq. m £1,052 per sq. m - Town centre retail £644 per sq. m - Hotel £1,405 per sq. m External / site infrastructure costs 10% of the basic build cost Contingency 3% of basic build costs Professional fees 8% of basic build costs / externals Marketing costs Letting – 15% of the annual Market Rent Investment sale – 1.5% of the sale price agreed Both include a legal fee Developer’s return Speculative – 15% on cost Pre-let – 12.5% on cost Finance costs 6% debit Average sales values Rent and yield approach, as detailed within the main body of the report below Threshold Land Values Brownfield (cleared) – £185,325 / Ha (£75k / acre) Greenfield – £271,810 / Ha (£110k / acre) 5 CONTENTS 1. INTRODUCTION Pg. 8 Instruction 8 2. VIABILITY METHODOLOGY 9 National Planning Policy Framework (“NPPF”) 9 Planning Practice Guidance (“PPG”) 9 Professional Guidance for Viability Assessments 12 The Financial Appraisal Model / The 'Residual' Method 16 Stakeholder engagement 20 Summary 21 3. RESIDENTIAL - VIABILITY ASSUMPTIONS 22 Introduction 22 Site Types 22 Gross and Net Developable Areas 23 Capacity / Density 25 Dwelling Mix and Sizes 26 Specification 29 Affordable Rented Assumptions 29 Intermediate / Shared Ownership Assumptions 32 Starter Homes 32 Market Value Sales Revenue 33 'Basic' Build Costs 34 Externals / Infrastructure 37 Contingency 40 Abnormal Development Costs 42 Professional Fees 44 Marketing 45 Developer's Profit 47 Finance 50 Threshold Land Value 51 Site Acquisition and Disposal Costs 52 Section 106 Contributions / Emerging Policy Aspirations 52 Scenario testing / sensitivity analysis 54 4. RESIDENTIAL – APPRAISAL RESULTS 56 Introduction 56 Test 1 – Council policies (bar affordable housing), BCIS lower quartile 56 Test 2 – Council policies (bar affordable housing), BCIS median 59 Test 3 – Estimated costs linked to council policy CCMRE3 are removed 61 Test 4 – Sales revenue increased by 5% 64 Test 5 – Starter Homes 66 Test 6 – All draft Council planning policies removed 69 Conclusions 71 5. NON-RESIDENTIAL – VIABILITY ASSUMPTIONS 72 Introduction 72 Site type 72 Methodology 73 Evidence 73 Scenario testing / sensitivity analysis 78 6 6. NON-RESIDENTIAL – APPRAISAL RESULTS 80 Introduction 80 Test 1 – Council policies 80 Test 2 – Excludes all Council policies 81 Test 3 – Excludes all Council policies except for flood risk mitigation costs 82 Conclusions 83 7. FINAL COMMENTS 84 Table A - Settlement Value Areas 23 Table B - Development type and viability tests 23 Table 1 – Minimum gross internal floor areas and storage (sq. m) 28 Table 2 – Sample of rented modern houses & affordable rent calculation 31 Table 3 – Test 1 Urban extension viability results 57 Table 4 – Test 1 Urban settlement viability results 58 Table 5 – Test 2 Urban extension viability results 59 Table 6 – Test 2 Urban settlement viability results 60 Table 7 – Test 3 Urban extension viability results 62 Table 8 – Test 3 Urban settlement viability results 63 Table 9 – Test 4 Urban extension viability