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Viability Session 3: The Mechanics of viability testing
- 1. Session 3: TheMechanics of viability testing
- 2. A simple developmentviability appraisal • Data Collection • Calculation (Residual Value, Cashflow) • Reality Check • Interpretation • Use of data Note: Will discuss consultation later – it is vital and required!
- 3. Data Collection Rubbish in= Rubbish out All inputs MUST be sourced!
- 4. Ask for informationearly Landowners and site promoters should be prepared to provide sufficient and good quality information at an early stage……. This will allow an informed judgement by the planning authority regarding the inclusion or otherwise of sites based on their potential viability. Harman Guidance – Page 23
- 5. Income Data INCOME AvSize % Number Price GDV GIA m2 87 £/m2 £ m2 Market Housing 95.0 70% 61 2,500 14,463,750 5,786 Shared Ownership 95.0 9% 8 1,750 1,301,738 744 Affordable Rent 95.0 21% 18 1,200 2,082,780 1,736 Social Rent 95.0 0% 0 900 0 0 Grant and Subsidy Shared Ownership 0 0 Affordable Rent 0 0 Social Rent 0 0 SITE AREA 2.50 ha 35 /ha 17,848,268 8,265
- 6. Income Data • BasicPrices by £/m2 • Residential Prices – House v flats • Commercial / non-residential • Affordable Prices • New v existing • Incentives and discounts • Variance by location or situation? • Grants, subsidies
- 7. Gross internal area? •BCIS (the costs) as ‘Rate per m2 gross internal floor area for the building’ • Direct from developers • Calculate – it will be an estimate
- 8. Income Data -Residential • Land Registry • Hometrack • Rightmove / Zoopla / Mouseprice • Halifax / Nationwide • CORE • Developers and RPs
- 9. Developer Scheme PlaceUnits Beds Internal GargargeSeparate GarargeFloors House Flat House Flat Price House Flat £/Bedroom sqft sqft m2 m2 £/m2 £/m2 Worcestershire Redrow Earls court Farm Worcester Hampstead 5 1 3 1845 359995 d #DIV/0! #DIV/0! 71999 Oxford 4 1 2 1261 284995 d #DIV/0! #DIV/0! 71248.75 Kenilworth 4 1 3 1095 204995 d #DIV/0! #DIV/0! 51248.75 Richmond 4 1 2 2024 469995 d #DIV/0! #DIV/0! 117498.8 Cambridge 4 1 2 1330 299995 d #DIV/0! #DIV/0! 74998.75 Cheltenham 5 1 3 196 444995 d 2270.383 #DIV/0! 88999 Westminster 4 1 2 1600 394995 d #DIV/0! #DIV/0! 98748.75 Warwick 3 1 2 1013 239995 d #DIV/0! #DIV/0! 79998.33 Redrow Hamlet Place Stourport on Severn Pembroke 4 1 2 1112 239995 d #DIV/0! #DIV/0! 59998.75 Salisbury 4 1 2 1564 339995 d #DIV/0! #DIV/0! 84998.75 Cambridge 4 1 2 1330 289995 d #DIV/0! #DIV/0! 72498.75 Redrow Great Park Rubery B45 Stratford 4 1 2 1096 249995 d #DIV/0! #DIV/0! 62498.75 Oxford 4 1 2 1261 267995 d #DIV/0! #DIV/0! 66998.75 Ruthin 1 2 100 269995 d 2699.95 #DIV/0! #DIV/0! Hampstead 1 3 1845 354995 d #DIV/0! #DIV/0! #DIV/0! Salisbury 1 2 1330 379995 d #DIV/0! #DIV/0! #DIV/0! Barratt 01299 288640waters Edge Stourport on Severn Trent 12 3 3 100 188000 t 1880 #DIV/0! 62666.67 Kent 4 3 3 90 186000 t 2066.667 #DIV/0! 62000 Leven 3 3 2 74 171000 t 2310.811 #DIV/0! 57000 River View 11 2 1 57.5 150950 F #DIV/0! 2625.217 75475 River View 11 1 1 40 130950 f #DIV/0! 3273.75 130950 Beaulieu House 3 2 1 52 169950 f #DIV/0! 3268.269 84975
- 10. ASHLEY Barratt Homes Whetheryou are looking for your perfect first home or looking for a more manageable property this two double bedroom home has everything you need. With an open plan lounge/dining area with separate fully fitted kitchen provides the perfect entertaining space on the ground floor which also has a useful downstairs WC. The first floor is home to two double bedrooms and separate bathroom. Mid-Terrace, Cloakroom, 624 Square feet http://www.barratthomes.co.uk/new-homes/warwickshire/H438401-Bluebell/plot-125
- 11. A 4 bedroom3 storey house for sale in Leicester The Cheltenham is a 4 bedroom 3 storey house for sale in Leicester which is set over 3 levels offering great flexibility in accommodation, ensuite to master bedroom a further family bathroom and shower room on the second floor. A spacious kitchen also with utility and living room. Good sized garden parking with a single garage
- 12. Income Data –Non-Residential • EGi Data / EGI Property Link • Agents • Valuation Office Agency • Developers
- 13. EGI – Propertydata TransactionProperty type Address Street Town Postcode Deal date Property type sub type Size UoM Size(sq ft) Price Yield % per annum per sq m per sq ft Lease Suite 1, Bank Court, Weldon Road, Loughborough, Leicestershire, LE11 5RF Weldon Road Loughborough LE11 5RF 18/07/2012 Office Office (B1a) 265 Net sq m 2,850 Not quoted Not quoted Sale Ground, 28 Factory Street, Loughborough, Leicestershire, LE11 1AL Factory Street Loughborough LE11 1AL 01/07/2012 Office Office (B1a) 42 Net sq m 454 £25,000 Not quoted Lease 1a Bakewell Road, Loughborough, Leicestershire, LE11 5QY Bakewell Road Loughborough LE11 5QY 01/07/2012 Office Office (B1a) 34 Net sq m 362 Not quoted £4,000 £118.94 £11.05 Lease Unit 13, Industrial Units, Prince William Way, Loughborough, Leicestershire, LE11 5DD Prince William Way Loughborough LE11 5DD 01/06/2012 Industrial / Distribution Light Industrial / Business Units (B1c) 412 Net sq m 4,432 £18 £18,000 £43.70 £4.06 Lease Unit 6, Industrial Units, Prince William Way, Loughborough, Leicestershire, LE11 5DD Prince William Way Loughborough LE11 5DD 30/05/2012 Industrial / Distribution Light Industrial / Business Units (B1c) 134 Net sq m 1,437 Not quoted £9,500 £71.15 £6.61 Lease 37a Granby Street, Loughborough, Leicestershire, LE11 3DU Granby Street Loughborough LE11 3DU 15/04/2012 Office Office (B1a) 52 Net sq m 559 Not quoted £4,800 £92.46 £8.59 Lease 39 Granby Street, Loughborough, Leicestershire, LE11 3DU Granby Street Loughborough LE11 3DU 15/03/2012 Office Office (B1a) 126 Net sq m 1,360 Not quoted £11,000 £86.97 £8.08 Sale 17 Forest Road, Loughborough, Leicestershire, LE11 3NW Forest Road Loughborough LE11 3NW 02/03/2012 Office Office (B1a) 148 Net sq m 1,593 £175,000 Not quoted Sale 202 Ashby Road, Loughborough, Leicestershire, LE11 3AG Ashby Road Loughborough LE11 3AG 01/01/2012 Office Office (B1a) 140 Net sq m 1,511 £265,000 Not quoted Lease Long Office, One Ash, Loughborough Road, Loughborough, Leicestershire, LE12 8UE Loughborough Road Loughborough LE12 8UE 01/12/2011 Office Office (B1a) 32 Net sq m 342 Not quoted £4,200 £132.18 £12.28 Lease Long Office, One Ash, Loughborough Road, Loughborough, Leicestershire, LE12 8UE Loughborough Road Loughborough LE12 8UE 01/12/2011 Office Office (B1a) 32 Net sq m 342 Not quoted £4,200 £132.18 £12.28 Sale Gelders Hall Industrial Estate - Matrix House, Gelders Hall Road, Shepshed, Loughborough, Leicestershire, LE12 9NH Gelders Hall Road Loughborough LE12 9NH 15/11/2011 Office, Industrial / Distribution Office (B1a), Industrial Park (B1/2/8) 1,368 Net sq m 14,720 £1,100,000 Not quoted Lease 35 Granby Street, Loughborough, Leicestershire, LE11 3DU Granby Street Loughborough LE11 3DU 03/11/2011 Office Office (B1a) 172 Net sq m 1,847 Not quoted £16,000 £93.22 £8.66 Lease Shepshed Road, Hathern, Loughborough, Leicestershire, LE12 5LZ Shepshed Road Loughborough LE12 5LZ 02/11/2011 Office Office (B1a) 103 Net sq m 1,110 Not quoted £9,000 £87.19 £8.10 Lease Unit M, Little Moor Lane, Loughborough, Leicestershire, LE11 1SF Little Moor Lane Loughborough LE11 1SF 15/10/2011 Industrial / Distribution Light Industrial / Business Units (B1c) 102 Net sq m 1,094 Not quoted £6,500 £63.94 £5.94 Lease The Point, Granite Way, Mountsorrel, Loughborough, Leicestershire, LE12 7TZ Granite Way Loughborough LE12 7TZ 15/09/2011 Office Office (B1a) 381 Net sq m 4,097 Not quoted £39,000 £102.47 £9.52 Lease 1st Floor, 29 Biggin Street, Loughborough, Leicestershire, LE11 1UA Biggin Street Loughborough LE11 1UA 30/08/2011 Office Office (B1a) 102 Net sq m 1,102 Not quoted £9,000 £87.83 £8.16 Lease 34 Woodgate, Loughborough, Leicestershire, LE11 2TY Woodgate Loughborough LE11 2TY 04/08/2011 Office Office (B1a) 111 Net sq m 1,194 Not quoted £10,500 £94.62 £8.79 Lease Unit 14, Charnwood Business Park, North Road, Loughborough, Leicestershire, LE11 1LE North Road Loughborough LE11 1LE 15/07/2011 Office Business Parks (B1b) 95 Net sq m 1,018 Not quoted £12,000 Lease 44b Church Gate, Loughborough, Leicestershire, LE11 1UE Church Gate Loughborough LE11 1UE 11/07/2011 Office Office (B1a) 138 Net sq m 1,490 Not quoted £13,000 £93.86 £8.72 Lease 44 Church Gate, Loughborough, Leicestershire, LE11 1UE Church Gate Loughborough LE11 1UE 01/07/2011 Office Office (B1a) 181 Net sq m 1,943 Not quoted £18,000 £99.67 £9.26 Lease 28 Factory Street, Loughborough, Leicestershire, LE11 1AL Factory Street Loughborough LE11 1AL 01/06/2011 Office Office (B1a) 42 Net sq m 454 Not quoted £6,000 £142.19 £13.21 Sale 88 Hawcliffe Road, Mountsorrel, Loughborough, Leicestershire, LE12 7AH Hawcliffe Road Loughborough LE12 7AH 13/05/2011 Office Office (B1a) 225 Net sq m 2,426 £183,600 Not quoted Sale Offices, 3 Cossington Road, Sileby, Loughborough, Leicestershire, LE12 7RW Cossington Road Loughborough LE12 7RW 31/01/2011 Office Office (B1a) 140 Net sq m 1,509 Not quoted Not quoted Lease 11 Hanford Way, Loughborough, Leicestershire, LE11 1LS Hanford Way Loughborough LE11 1LS 21/12/2010 Retail Car Showrooms (B1c) 444 Net sq m 4,784 Not quoted £41,000 Lease 251 Loughborough Road, Mountsorrel, Loughborough, Leicestershire, LE12 7AS Loughborough Road Loughborough LE12 7AS 13/12/2010 Office Office (B1a) 17 Net sq m 188 Not quoted £3,100 £177.50 £16.49 Investment Sale 19 Baxter Gate, Loughborough, Leicestershire, LE11 1TG Baxter Gate Loughborough LE11 1TG 01/11/2010 Office Office (B1a) 167 Net sq m 1,800 £185,500 Not quoted Lease Unit B2, Loughborough Motorway Trading Estate - Illuma House, Gelders Hall Road, Shepshed, Loughborough, Leicestershire, LE12 Gelders Hall Road Loughborough LE12 9NH 27/09/2010 Office Business Parks (B1b) 245 Net sq m 2,638 Not quoted £23,750 £96.88 £9.00 Lease Unit B3, Loughborough Motorway Trading Estate - Illuma House, Gelders Hall Road, Shepshed, Loughborough, Leicestershire, LE12 Gelders Hall Road Loughborough LE12 9NH 24/09/2010 Office Business Parks (B1b) 120 Net sq m 1,289 Not quoted £11,500 £96.01 £8.92 Lease Park View, One Ash, Loughborough Road, Loughborough, Leicestershire, LE12 8UE Loughborough Road Loughborough LE12 8UE 13/08/2010 Office Office (B1a) 40 Net sq m 433 Not quoted £3,600 £89.45 £8.31 Lease Long Office, One Ash, Loughborough Road, Loughborough, Leicestershire, LE12 8UE Loughborough Road Loughborough LE12 8UE 13/08/2010 Office Office (B1a) 64 Net sq m 684 Not quoted £9,600 £151.02 £14.03 Lease 43a-43b Church Gate, Loughborough, Leicestershire, LE11 1UE Church Gate Loughborough LE11 1UE 01/07/2010 Office Office (B1a) 167 Net sq m 1,800 Not quoted £12,000 £71.69 £6.66 Investment Sale 12 Southfield Road, Loughborough, Leicestershire, LE11 2UZ Southfield Road Loughborough LE11 2UZ 15/06/2010 Office Office (B1a) 402 Net sq m 4,327 £712,000 6.61 £49,760 £123.79 £11.50 Lease Unit Q, Little Moor Lane, Loughborough, Leicestershire, LE11 1SF Little Moor Lane Loughborough LE11 1SF 21/04/2010 Industrial / Distribution Light Industrial / Business Units (B1c) 118 Net sq m 1,268 Not quoted £6,500 Lease Units R & S, Little Moor Lane, Loughborough, Leicestershire, LE11 1SF Little Moor Lane Loughborough LE11 1SF 12/04/2010 Industrial / Distribution Light Industrial / Business Units (B1c) 448 Net sq m 4,822 Not quoted £11,000 Lease Unit K, Little Moor Lane, Loughborough, Leicestershire, LE11 1SF Little Moor Lane Loughborough LE11 1SF 01/03/2010 Industrial / Distribution Light Industrial / Business Units (B1c) 61 Net sq m 655 Not quoted Not quoted Lease 5 Hanford Way, Loughborough, Leicestershire, LE11 1LS Hanford Way Loughborough LE11 1LS 01/03/2010 Office, Retail Office (B1a), Car Showrooms (B1c) 1,246 Net sq m 13,412 Not quoted £20,000 EGi -- Comparable Deals Data - Exported 17/09/2012 Total space Rental income
- 14.
- 15. Residential vs. commercial ResidentialCommercial Purchaser usually buying a home they intend to occupy themselves Purchaser usually buying a rental stream as well as the property itself One customer: Usually a purchaser looking for a new home. Two customers: Tenant looking for suitable premises and investor looking for a rental stream. Usually valued using GIA Usually valued using NIA
- 16. What is the‘yield’? • The rent as a proportion of the purchase price • There is an inverse relationship between yields & values, i.e. a higher yield means a lower value & a lower yield means a higher value. • Yields are often used in development appraisals to estimate the value of the completed development when it is expected to be rented to a tenant (or tenants). This consequently usually applies to commercial property, although it can apply to residential property where it is also rented.
- 17. What affects yields? •Risk & future growth prospects (rental stream & capital value of property). High risk = high yield. But, the higher the future growth prospects = lower yield • Low risk = lower return e.g. savings in an ISA. In a casino you would be aiming for a higher 'yield' to compensate for the probability of failure • For the main investment classes Government Bonds (gilts) are low risk whereas stocks & shares are more high risk. Returns on property investment tend to be in the middle, offering more income & capital growth potential than gilts and less risk than shares
- 18. What affects propertyyields? • The tenant - Is it a strong tenant in terms of security of income (or rent)? Security is something you would normally expect to pay for, perhaps by accepting a lower initial return on your investment. • The area - Is the location suitable for a building of this quality? Is it declining or improving? Is the access good? • The building itself - What is it like? If the tenant goes bust, how easy will it be to find a new tenant? Do these and other lease clauses protect your investment e.g. upward only rent reviews etc.?
- 19. Yield example • Officesare normally bought by investors such as pension funds. Let us assume a pension fund wants to buy an office when it is fully occupied by a tenant(s)… • The developer should have a firm idea of what rent the building is likely to achieve e.g. £100,000pa. • In basic development appraisals, the initial rent is therefore used to help estimate the development value. The key question is therefore how much should this rent should be multiplied by to calculate what price a purchaser will pay.
- 20. Yield example (continued…) •The “multiplier” is calculated as 1 / yield. Therefore: Development Value = Initial Rent x (1 / Yield) x 100 • Let’s assume the pension fund requires a return of 6% pa. Therefore the value of the rented office building as an investment is calculated as follows: £100,000 x (1 / 6) x 100 = £1.6m
- 21. Yield example (continued…) •The previous scenario did not include assumptions on future rent or prospects for capital growth of the asset i.e. it assumed the pension fund would receive a flat £100,000 pa in perpetuity. • Let us now assume the office is in a good location with a good tenant and good prospects for rental growth e.g. up and coming area, office market looking healthy locally etc. With this information the pension fund is likely to accept a lower initial yield e.g. 5%: £100,000 x (1 / 5) x 100 = £2m
- 22. Yield example (continued…) •Let us now assume the pension fund are less convinced that the rent will rise in the future and they are worried that the tenant found by the developer are unlikely to stay solvent or remain in the area long term. With this information the pension fund is likely to want a much higher yield e.g. 10%: £100,000 x (1 / 10) x 100 = £1m • These examples demonstrate the inverse relationship between yields & values. Clearly it would make no sense for the pension fund to pay over the odds for a riskier investment.
- 23. Rents, Yield andCapital Value Development Value = Rent x (1 / Yield) x 100 Yield = (Rent / Value) x 100 Years Purchase (YP) = 1/Yield
- 24. Rent to Value Table5.1 Capitalised typical rents £/m2 Rent£/m2 Yield Capitalised Rent £/m2 Large industrial 41 7.0% 586 Small industrial 48 7.0% 686 Distribution 50 6.0% 833 Large office 93 6.5% 1,431 Small office 100 7.0% 1,429 Large retail - Convenience 130 5.0% 2,600 Large retail - Other 120 7.0% 1,714 Small Retail 105 7.0% 1,500 Leicester Shops 236 7.0% 3,371 Other Shops 150 11.0% 1,364 Hotels 6.5% 2,150 Student Halls 6.5% 2,225 Leisure 75 8.0% 938
- 25. Costs DEVELOPMENT COSTS Planningfee calc Planning app fee dwgs rate LAND /unit or m2 Total No dwgs 87 Land 42,499 3,697,391 No dwgs under 50 37 335 12,395 Stamp Duty 184,870 No dwgs over 50 37 100 3,700 Easements etc. 0 Total 16,095 Legals Acquisition 1.50% 55,461 240,330 PLANNING Planning Fee 16,095 Stamp duty calc - Residual Architects 6.00% 511,275 Land payment 3,697,391 QS / PM 1.00% 85,213 125,000 0% 1% Planning Consultants 0.50% 42,606 250,000 1% 3% Other Professional 2.50% 213,031 868,220 500,000 3% 4% 1,000,000 4% 5% CONSTRUCTION above 5% 5% Build Cost - BCIS Based 925 7,645,125 Total 184,870 s106 / CIL 5,000 435,000 Contingency 2.50% 191,128 Stamp duty calc - Add Profit Abnormals 250,000 8,521,253 Land payment 700,000 125,000 0% 1% FINANCE 250,000 1% 3% Fees 10,000 500,000 3% 4% Interest 7.00% 1,000,000 4% 5% Legal and Valuation 7,500 17,500 above 5% 5% Total 35,000 SALES Agents 2.0% 356,965 Legals 0.5% 89,241 Misc. 5,000 451,207 13,795,901 Developers Profit % of costs (before interest) 20.00% 2,759,180 Post CIL s106 1,000 £/ Unit (all) % of GDV 0.00% 0 Total 87,000
- 26. Construction • BCIS • SiteCosts • Abnormals • Contingency
- 27. BCIS Rate per m2gross internal floor area for the building Cost including prelims. Last updated 12-Jan-2013 12:01. Location adjusted to Cumbria (Location index 93, sample 73). Maximum age of results: Default period Building Function (Maximum age of projects) £/m² gross internal floor area Sample Mean Lowest Lower Quartile Median Upper Quartile Highest New build 810. Housing, mixed developments (15) 758 383 638 735 849 1660 641 810.1 Estate housing Generally (15) 739 381 631 721 817 1534 1131 Single storey (15) 814 440 700 786 920 1409 227 2-storey (15) 719 381 625 702 798 1374 817 3-storey (15) 723 477 605 671 808 1534 85 4-storey or above (25) 1038 791 - 949 - 1373 3 810.11 Estate housing detached (15) 744 586 615 668 816 1009 11 810.12 Estate housing semi detached Generally (15) 738 385 631 722 825 1409 234 Single storey (15) 861 543 728 861 979 1409 47 2-storey (15) 711 385 623 703 795 1043 176 3-storey (15) 646 512 576 617 704 896 11 810.13 Estate housing terraced Generally (15) 758 382 631 731 856 1534 259 Single storey (15) 805 497 671 752 927 1237 52 2-storey (15) 747 382 634 733 848 1163 171 3-storey (15) 739 482 606 668 780 1534 36 816. Flats (apartments) Generally (15) 869 441 724 836 970 2674 646 1-2 storey (15) 835 492 720 807 928 1560 177 3-5 storey (15) 856 441 718 835 965 1761 421 6+ storey (15) 1138 662 872 1075 1280 2674 41 818. Housing with shops, offices, workshops or the like (15) 987 495 760 891 1179 2226 48 820.1 'One-off' housing detached (3 units or less) Generally (15) 1191 523 892 1057 1405 2655 100 Single storey (15) 980 523 852 932 1092 1444 41 2-storey (15) 1236 608 936 1069 1485 2465 42 3-storey (15) 1562 972 1399 1471 1724 2655 13 4-storey or above (25) 1451 947 - 1240 - 2376 4 820.2 'One-off' housing semi- 841 561 745 835 932 1228 103
- 28. Construction • BCIS • SiteCosts – 10% to 20% • Abnormals – site by site Highways, flooding demolition, design, decontamination etc. • Contingency – 2.5% Greenfield 5% Brownfield +7% on horrible sites
- 29. Phasing and BuildRate • Size of site • Size of developer • Availability of mortgages • Pre 2007 45 to 50 per year • Now? 30 to 35 per year • Multiple developers
- 30. Variables • Small Changesof cost or income can have a huge difference in result – the bigger the numbers the more sensitive. –101-100=1 but 102-100=2 –1% change in price results in a 100% change in outcome • Scenarios – cost and price change policy requirements
- 31. Building the modelup and scenario testing • Discounted Cash Flow –NPV –IRR • Return On Capital Employed (ROCE)
- 32. Monitoring Viability By referenceto indices: Costs BCIS GDV Land Reg Halifax / Nationwide Composite Academetrics Hometrack Rightmove / Zoopla / BUT – have new build followed wider market?
- 33. Assumptions and testing “makesome very cautious and transparent assumptions with sensitivity testing of the robustness of those assumptions it is important that variations against baseline costs, as well as values, are tested.” (page 27 – Harman)
- 34. PPG: How shouldchanges in values and costs be treated in plan-making? Plan makers should not plan to the margin of viability but should allow for a buffer to respond to changing markets and to avoid the need for frequent plan updating. Current costs and values should be considered when assessing the viability of plan policy. Policies should be deliverable and should not be based on an expectation of future rises in values at least for the first five years of the plan period.
- 35. Gross Development Value Allincome from a Scheme Construction Site Remediation Abnormals Etc. Fees Design Engineer Sales Etc. Profit Developers Builders Land Existing / Alternative Use Value + premium (TLV/EUV+) Policies/CIL CIL, affordable housing, CfSH, open space etc.
- 36. Carveth Read: “It isbetter to be vaguely right than exactly wrong” Logic, deductive and inductive (1898), p. 351
Editor's Notes
- #3 Getting good information from the right sources is very important. How do the costs interrelate?
- #4 Ensure you are only looking at viability in your area, don’t get caught up with other markets. Don’t bother with sub-regional numbers and check you’re not picking up data from other nearby areas
- #6 For the simple model LPAs need to establish their GDV based on price per m2, this is incredibly important.
- #7 Residential prices are very different between new and existing stock dwellings. Prices have gone up historically for both, but then a big drop when housebuilders tried to get rid of their stock. Existing stock houses also dropped. The best housing available on the market has recovered, new build prices are significantly above 2007 prices with big increases in last 6 months. There is an element of smoke and mirrors around this, a developer will only build a product that will be viable and profitable therefore is caution needed. Do some market research e.g. ring site offices and talk to them as mystery shopper to find out true prices after negotiations and check Land Registry data. Again be mindful that prices will need to be converted to £per m2 so you may have to search on developer websites to get averages for GIA. Essentially you’re comparing new stock prices vs. existing. With Affordable Hosuing prices LPAs should stay on top of monitoring. When Housing Association funding becomes more mature values should increase. When a Housing Association sells a unit it is buying an income stream to securitise to get a yield. Please note that higher values haven’t worked through to the market as yet. Think about the mix of Houses v. flats in your area. Is it appropriate to put any weight on flats that aren’t coming forward and its difficult to get a mortgage for them? In some areas there are large clusters of student populations/buy to let flats. Newcastle are charging CIL for student housing but not residential units in their town centre. Location of housing and local characteristics is obviously important to prices and this needs to be reflected in the modelling. Don’t just go by postcode either price can vary depending on the view.
- #8 You’ll need to estimate if there is no precise data
- #9 Plethora of data in this area: Land registry – actual sales Hometrack – can be expensive Mouseprice – used by many developers Halifax/Nationwide – caution is needed for these as they’re based on mortgage approvals CORE (HCA funded providing a record of rents for Housing Associations - vital for AH rents as let prices are usually higher than what HA actually claim) Zoopla does pounds per m2 You need to think about full tenures if values are working out quite similar to a developers you could lump them in together. Some LPAs do it separately to aid negotiations with developers
- #10 For each builder/developer think about monitoring their names of housetypes. This way you can build up a database of GIA for £per m2
- #11 Barratts tell you how big they are
- #13 Non-residential data is more difficult to get. LPAs that let their own portfolios should use this evidence as primary data to fend off developers assumptions for modelling. The EGI is equivalent to Rightmove for commercial properties. The VOA have stopped their annual property report so you’ll have to speak to your local agents.
- #14 The Egi looks at Historic deals, their location, rent, Capital Value. But it does not tell you condition of building or local site characteristics. It can be complicated with lots of data.
- #15 Needs to be explained as Inspector will not always know how it works
- #24 Must be able to explain to the examiner if they are not au fait with commercial property valuation mechanics (see manual for further information)
- #25 Convert rents to capital values
- #26 What costs do you need? BCIS do not include site costs – so land needs to be included.
- #27 As stated BCIS does not include site costs (normally 10-20%) and contingency is not given enough consideration in the index. Contingency absolutely has to be considered alongside profit. Contingency will increase with risky sites.
- #28 The BCIS lists comprehensive costs, discuss here residential costs (as not very readable) re: viability studies. Some are unsophisticated in their approach to development costs. You need to show that you’ve looked at typologies in detail (Action Point – is the Harman appendix useful here?)
- #29 The phasing of blocks of flats is very difficult due to construction methods and usual site conditions
- #30 Think about how certain typologies phased and sold.
- #31 The RICS guidance says that you should include lots of market value information for issues around price. The IMF/World bank has predicted a price fall over next 5 years in the order of 15-30% (yet Savills suggest an upturn!). LPAs should distance themselves from predictions as LPAs are not economists. If developers agent says prices are going up use the same assumptions. You’ll need certainty of costs for very large infrastructure if it is at the heart of plan. It is suggested you employ a QS to report on BCIS figures. If you encounter a very difficult developer/landowner then give up on that site and use a different one if you think the probability of the site coming forward in the first 5 years is low. Be mindful that objectors are sometimes developers who want to develop other land parcels in the area. In sensitive situations get information from developers by engaging on an individual basis as it’s in their interests to help You can use s106 to ensure developers contribute – also 123 list Monitoring must be fine grained
- #32 There are lots of different forecasting methods which you can use but avoid making up your own. Harman talks about simulation and scenario testing. For example, if house prices increased by 5% then how many more sites would become viable?
- #33 Assume a 3 year cycle unless there is a major shift in market. If there are marginal increases consider change in development If land registry has fallen this doesn’t mean new house prices have fallen – be careful! Too much reliance on indices can smooth out local/regional differences Remember that even after adoption this is an on-going engagement process. So keep up with developers, build costs, refresh appraisals if numbers change and then revisit targets. Caution is required if you’re thinking of employing a dynamic viability models (e.g. Waltham Forest, Croydon). If the market is tricky then it is best to keep to a simple model With so many different indices remember that developers will use one that suits them best
- #34 There are ultimately 3 categories of sites: 1) those viable now 2) not yet but may be in future 3) unviable
- #36 Local Plan policies and CIL charges can be influenced by the LPA. The LPA must agree with development community the methodology, assumptions and inputs for whole plan viability modelling e.g. costs, fees, profit level, land values etc. The threshold of viability and Threshold Land Value is Talk through the costs and discretionary costs Members will have a view on what they’re prepared to sacrifice in policy terms. The rule of thumb (1/3 of cost to land, 1/3 builder, 1/3 developer) is out of date now.