housing viability assessment example - salford

8/18/2019 Housing Viability Assessment Example - Salford

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Salford City Council

Housing viability

assessment

August 2013


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Contents

Chapter Page

number

1. Introduction 1

2. Methodology and assumptions 2

3. Assessment results 20

Annexes

1. BCIS Build Cost data, Greater Manchester (27 July 2013)

2. Appraisals 1-13


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Salford City Council housing viability assessment (August 2013)

1

1. Introduction

1.1 This housing viability assessment (referred to as the assessmenthereafter) looks at the potential implications of the city council‟splanning obligations supplementary planning document (SPD) and

education contributions SPD on the financial viability of housingschemes.

1.2 This is a strategic assessment, and does not seek to test the viability ofspecific sites. It assesses the viability of “average” sites. Inevitably theeconomics of individual schemes will vary considerably, with somebeing more viable and some less viable.

1.3 In producing this assessment, regard has been had to the advice forplanning practitioners that was produced by the Local Housing DeliveryGroup1. The viability assessments have been run using the Homes and

Communities Agency development appraisal tool.

1.4 This report is split into three chapters as follows:

Chapter 2 outlines the methodology used within the assessmentand the assumptions used to inform the viability appraisals

Chapter 3 assess the findings of the assessment and theimplications arising from this

1 Local Housing Delivery Group (June 2012) Viability testing local plans. Advice for

planning practitioners

http://www.nhbc.co.uk/NewsandComment/Documents/filedownload,47339,en.pdfhttp://www.nhbc.co.uk/NewsandComment/Documents/filedownload,47339,en.pdfhttp://www.nhbc.co.uk/NewsandComment/Documents/filedownload,47339,en.pdfhttp://www.nhbc.co.uk/NewsandComment/Documents/filedownload,47339,en.pdfhttp://www.nhbc.co.uk/NewsandComment/Documents/filedownload,47339,en.pdfhttp://www.nhbc.co.uk/NewsandComment/Documents/filedownload,47339,en.pdf


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2. Methodology and assumptions

2.1 Viability appraisals include a wide range of assumptions aboutparticular schemes / sites, including the capital value of a development(primarily the value realised by selling new dwellings), the cost of

developing a site (such as buying the land, build costs), the profit adeveloper expects from a particular site, and finance costs.

2.2 Viability assessments can vary significantly with only minor changes inassumptions, and therefore they can only ever provide a relativelybroad estimate of the potential scope of planning obligations. It isimportant that they are seen in this context rather than as preciseforecasts.

2.3 Having regard to this, it was considered most appropriate for thepurposes of this assessment to use generic viability appraisals based

on a range of different development scenarios (in terms of dwelling mixand different residential sales values in the city). Such appraisals arenot intended to be detailed site appraisals for use in relation toparticular schemes, and as such do not take into account detailed sitespecific issues of ground conditions, demolition etc. However, genericappraisals do make informed judgements and estimates with regards todifferent variables, and are considered to be an appropriate basis forassessing general levels of viability across the city.

Generic development sites

Dwelling mix (type and number of bedrooms)

2.4 Given that it is considered most appropriate to undertake genericviability assessments, and in order to test a broad range of residentialscheme types, four different scheme typologies were chosen asfollows:

Low density family housing scheme (at 35 dwellings per hectare)

Mid-density apartment scheme (at 125 dwellings per hectare)

High density apartment scheme (at 300 dwellings per hectare)

Mixed scheme of 80% houses (at 35 dwellings per hectare) and

20% apartments (at 125 dwellings per hectare).

2.5 The precise mix on actual sites will of course vary from the abovetypologies on a site by site basis. However, collectively the chosentypologies are considered to cover the broad range of schemes that arelikely to come forward for development in the city, having regard to pastcompletions, sites with planning permission for housing, and the typeand density of schemes identified in the city council‟s strategic housingland availability assessment as being developable for new housing inthe future.

2.6 Each generic development site is 2 hectares (ha) in size. Considerationwas given as to whether other site sizes should be used in the


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appraisals, but this was not considered necessary given that it is notlikely that site size would have a notable difference on the ability ofdifferent sites to support planning obligations at different levels.

2.7 The precise mix of dwellings, in terms of type (apartments and different

house types) and number of bedrooms, under each scheme typologywas determined having regard to ensuring that a broad range of typesand sizes were provided in each scheme. This was consideredappropriate and is reflective of the fact that when bringing forwardactual development sites, developers tend to include a range ofproperty types and sizes, in order to cater for a wide range of needsand demands.

2.8 The table below shows the total number of dwellings in each of thescheme typologies, and also shows the split by size (number ofbedrooms) and type.

Table 1- Scheme typology dwelling mix

Scheme typology Total dwellings(2ha site)

Mix of dwellings (2ha sites)

Low densityfamily housingscheme (35dph)

70 dwellings (70houses)

8 x 2 bed semis

25 x 3 bed townhouses


8 x 4 bed detached

4 x 5 bed detached

Mid-density

apartmentscheme (125dph)

250 dwellings (250

apartments)

99 x 1 bed apartments

138 x 2 bed apartments 13 x 3 bed apartments

High densityapartmentscheme (300dph)

600 dwellings (600apartments)




Mixed scheme of80% houses (at35dph) and 20%apartments (at125dph).

106 dwellings (21apartments, 85houses)



8 x 2 bed semis



10 x 4 bed detached 4 x 5 bed detached

Scheme typology floorspaces

2.9 Having established the mix of dwellings for the different generic sitetypes, it was necessary to estimate the total floorspace in each of them,given that the appraisals need to include an allowance for build costsand sales costs on a cost per square metre basis.

2.10 In order to calculate the floorspace in each scheme typology, the

starting point was to make an assumption about the floorspace of each


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of the dwellings. For the purposes of the appraisals, the followingdwelling sizes (net internal area in square metres) were assumed.

Table 2 – Dwellings size by number of bedrooms and property type

Apartment Semi-

detached(2 storey)

Townhouse

(3 storey)

Detached

(2 storey)

1 bed 50sqm n/a n/a n/a

2 bed 65sqm 70sqm n/a n/a

3 bed 80sqm 85sqm 105sqm 105sqm

4 bed n/a 100sqm 120sqm 125sqm

5 bed n/a n/a 135sqm 160sqm

2.11 The assumptions in relation to dwelling size as set out in the tableabove were developed with regard to:

The Homes and Communities Agency (HCA) housing qualityindicators unit size ranges2

The size of dwellings being built in the city

Existing planning policy in the unitary development plan andhousing planning guidance

An allowance of 12sqm being made for all townhouse dwellingtypes and the 3 and 4 bed detached units, to allow for a singlegarage. For the 5 bed detached units, an allowance of 24sqm wasmade for a double garage

2.12 The floorspaces referred to above are for the net internal floor area,

and are used when determining the estimated sales value ofproperties. However, build costs within the appraisals relate to grossfloorspace, and so therefore gross floorspace also needed to becalculated.

2.13 For schemes involving only the development of houses, the net andgross floorspaces are the same. However, in schemes that includeapartments an estimate needed to be made for the space occupied bycommon areas. The HCA state that an additional allowance of 15% forcommon areas is a commonly accepted figure, and on this basis anallowance of 15% was utilised in this assessment.

2.14 In addition, in the high density apartment scheme it was assumed thatthere was on-site basement / podium parking at a ratio of 0.5 spacesper apartment. This adds extra floorspace to the scheme (and anassociated build cost) and so an assumption was made as to what thisequates to. Having regard to the size of car parking spaces, andensuring sufficient vehicular circulation space, an allowance of 25square metres per space was made.

2 Housing Corporation (Published May 2007, updated April 2008) 721 Housing

Quality Indicators Form

http://www.homesandcommunities.co.uk/sites/default/files/our-work/721_hqi_form_4_apr_08_update_20080820153028.pdfhttp://www.homesandcommunities.co.uk/sites/default/files/our-work/721_hqi_form_4_apr_08_update_20080820153028.pdfhttp://www.homesandcommunities.co.uk/sites/default/files/our-work/721_hqi_form_4_apr_08_update_20080820153028.pdfhttp://www.homesandcommunities.co.uk/sites/default/files/our-work/721_hqi_form_4_apr_08_update_20080820153028.pdfhttp://www.homesandcommunities.co.uk/sites/default/files/our-work/721_hqi_form_4_apr_08_update_20080820153028.pdfhttp://www.homesandcommunities.co.uk/sites/default/files/our-work/721_hqi_form_4_apr_08_update_20080820153028.pdf


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2.15 Adding the extra floorspace for apartments in relation to commonareas, and basement parking in the high density scheme, to the netinternal floorspace of individual dwellings provides the gross floorspacefor apartments. Having regard to this, the table below shows the netand gross floorspace in each of the 4 scheme typologies. As noted

above, these floorspace figures were used in the viability appraisals.

Table 3 – Total floorspace by scheme typology


Mix of dwellings(2ha sites)

Floorspace

Low densityfamily housingscheme (35dph)

70 dwellings 8 x 2 bed semis

25 x 3 bedtownhouses

25 x 4 bedtownhouses

8 x 4 beddetached

4 x 5 beddetached

8 x 70sqm

25 x 105sqm

25 x 120sqm

8 x 125sqm

4 x 160sqm

Total gross / netfloorspace =7,825sqm

Mid-densityapartmentscheme (125dph)

250 dwellings 99 x 1 bedapartments

138 x 2 bedapartments


99 x 50sqm

138 x 65sqm

13 x 80sqm

Total netfloorspace =

14,960sqm

+15% forcommon areas =2,244sqm

Total grossfloorspace =17,204sqm

High densityapartment

scheme (300dph)




200 x 50sqm

380 x 65sqm

20 x 80sqm

Total netfloorspace =36,300sqm

+15% forcommon areas =5,445 sqm

+ 300 basementcar parking


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Mix of dwellings(2ha sites)

Floorspace

spaces at 25sqmeach = 7,500sqm

Total grossfloorspace =49,245sqm

Mixed scheme of80% houses (at35dph) and 20%apartments (at125dph).



8 x 2 bed semis

32 x 3 bed

townhouses 31 x 4 bed

townhouses

10 x 4 beddetached

4 x 5 beddetached

8 x 50sqm

13 x 65sqm

8 x 70sqm

32 x 105sqm

31 x 120sqm

10 x 125sqm

4 x 160sqm

Total netfloorspace =10,775sqm

+15% forcommon areas inapartments =187 sqm

Total grossfloorspace=10,962sqm

General approach to viability appraisals

2.16 The city council utilised Version 2.04 (March 2013) of the HCAdevelopment appraisal tool (DAT) model to run the viability appraisals.The DAT is a standard valuation model that runs in Microsoft excel andis freely available to download via the HCA website3. Full details of theoperation of the model are set out in the user manual which is also

available from the HCA website.

2.17 The generic viability assessments undertaken by the city council useda form of the residual value technique, although land values wereinputted into the appraisals so that the output is actually the residualsurplus / deficit, as opposed to the maximum residual value that adeveloper is able to pay a landowner to purchase the land (ascommonly seen in other appraisals). The reason this approach wasused is that it enabled the appraisals to identify any residual surplus,after land costs and standard developer profit have been deducted,which would be available to be directed towards planning obligations

3 Homes and Communities Agency (March 2013) Development Appraisal Tool

http://www.homesandcommunities.co.uk/ourwork/development-appraisal-toolhttp://www.homesandcommunities.co.uk/ourwork/development-appraisal-toolhttp://www.homesandcommunities.co.uk/ourwork/development-appraisal-toolhttp://www.homesandcommunities.co.uk/ourwork/development-appraisal-tool


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(given that no allowance was made in the appraisals for suchobligations).

2.18 The approach taken by the city council, and the different variables thatmake up the appraisals, can be summarised as follows:

Table 4 – Approach to calculating scheme surplus / deficit

A A1 A2 A3 A4

Gross Development valueResidential sales valuesCar parkingGround rentGround rent yield

BB1B2B3

B4

Land acquisition costsValue at which a landowner will sell Agent feesLegal fees

Stamp dutyCC1C2C3C4C5C6C7C8

C9

Development costsBuild costsDecontaminationDemolitionInfrastructureCarbon emissions / code for sustainable homesMarketing and sales feesLegal feesBuilding design fees

Building contingenciesDD1

Finance costsInterest rates

EE1

Developer overhead and return for riskDeveloper „profit‟

Overall surplus / deficit available for planning obligations =A – (B+C+D+E)

Viability appraisal assumptions

2.19 Data on the different variables that form part of the appraisals was

collated having regard to a number of factors, including: Development appraisals submitted within Salford in support of

planning applications

The HCA economic appraisal tool (EAT) user manual

Discussions with Urban Vision Property Services over certainassumptions

Publicly available data (such as stamp duty rates, Valuation Office Agency (VOA) land values)

Local Housing Delivery Group (June 2012) – viability testing localplans: advice for planning practitioners

2.20 The following section sets out the different assumptions the city councilmade in the appraisals.


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A. Gross development value

A1. Residential sales values2.21 The DAT requires that residential sales value data per square metre is

inputted. As part of work that fed into the city council‟s affordablehousing economic viability assessment (AHEVA)4, data was assembledon residential asking prices from housing developer websites andRightmove to approximate sales values per square metre (with dwellingfloorplans being readily available from these sources).

2.22 For the purposes of the AHEVA, the city was initially split into 33 sub-areas to simplify the data collection process, with those areas definedon the basis that they each have reasonably common housing marketcharacteristics although inevitably there are some significantdifferences within them. Some of these sub-areas were subsequently

split into smaller areas as a result of the analysis.

2.23 The review that fed into the AHEVA appraised over 300 residentialproperties across the city being marketed for sale as at July 2011, andlargely focused on new build residential developments or modernhousing developments (that have been completed within the past 20years). For areas of the city where there were a limited number of newbuild developments or modern housing developments, the asking pricevalues for older dwellings were utilised.

2.24 This detailed analysis identified a significant range of asking pricevalues across the city, ranging from £1,000 per sqm to £5,165 per sqmof net internal floorspace. Using the 33 sub-areas as a basis, clearpatterns were identified with particular spatial areas having broadlysimilar sales values.

2.25 Taking account of this, five broad residential sales value areas wereidentified in the AHEVA. These were considered to give a good overallindication of sales values across the city, although inevitably there issome variance and outliers within each one.

2.26 The table below sets out the different value areas and the range ofsales values within them.

Table 5 – Residential sales value areas

Sales valuearea

Sales values per sqm Areas

High Over £3,000 Regional Centre within the innerrelief route, and Salford Quays

Mid / high £2,600 to £3000 Worsley, South Swinton, and ChatMoss

4 Salford City Council (February 2012) Affordable housing economic viabilityassessment

http://www.rightmove.co.uk/http://www.rightmove.co.uk/http://www.salford.gov.uk/aheva.htmhttp://www.salford.gov.uk/aheva.htmhttp://www.salford.gov.uk/aheva.htmhttp://www.salford.gov.uk/aheva.htmhttp://www.salford.gov.uk/aheva.htmhttp://www.salford.gov.uk/aheva.htmhttp://www.rightmove.co.uk/


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Sales valuearea

Sales values per sqm Areas

Mid £2,200 to £2,600 Broughton Park and Kersal, ChapelStreet / The Crescent, ExchangeQuay, Ellesmere Park and Monton,

Boothstown, Ellenbrook, and SouthWalkden

Mid / low £1,800 to £2,200 Trinity, Ordsall, Claremont, Ecclesand Peel Green, Irlam andCadishead, Swinton, Pendleburyand Agecroft, and North Walkden

Low £1,400 to £1,800 Higher and Lower Broughton,Charlestown and Lower Kersal,Pendleton, Weaste, Seedley andLangworthy and Little Hulton

2.27 The plan below identifies the boundaries of these defined value areas.


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2.28 For the purposes of this housing viability assessment the sales valueareas have been reviewed in order to assess whether they continue toprovide an appropriate basis for defining value areas across the city.This was done by looking at the sales values per square metre in newbuild developments that are currently being marketed in the city, and

utilising proposed sales values that have been submitted to the citycouncil recently as part of viability evidence supporting planningapplications (and subsequently verified as being appropriate by UrbanVision Property Services).

2.29 The conclusion from this exercise was that the sales value areasidentified in the AHEVA remain valid.

2.30 The Local Housing Delivery Group advice on viability testing states atpage 34 that “when considering information on sales values and rates,care should be taken to reflect current market conditions having regard

to net sales revenues achieved rather than asking prices. (Net revenueis the actual revenue received by the home builder after allowing fordiscounts, sales incentives etc).”

2.31 The value areas highlighted above were identified having regard toasking prices. As noted in the Local Housing Delivery Group advice,account needs to be had to actual sales values. Having regard to this,and in order to ensure that viability in the appraisals was not overestimated, the lower asking price value (within the range identified foreach sales value area) has been inputted into the DAT as follows:

Table 6 – Sales value per sqm used in appraisals

Sales valuearea

Sales value persqm

Sales value persqm used inappraisals

High Over £3,000 £3,000

Mid / high £2,600 to £3000 £2,600

Mid £2,200 to £2,600 £2,200

Mid / low £1,800 to £2,200 £1,800

Low £1,400 to £1,800 £1,400

A2. Car parking2.32 The HCA DAT manual is clear that this element of the model relates to

„off -plot‟ car parking spaces, such as those in basements, where thespaces are sold separately from the dwelling (and are not thereforeincluded in the sales price). This provides additional capital value in ascheme.

2.33 As noted above, it was assumed that the provision of off-plot residentialcar parking spaces only applies to the high density apartment scheme(300dph) typologies, in the high value area (i.e. some parts of theregional centre). The provision of car parking spaces was assumed at

50% of the number of apartments in each scheme.


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2.34 A value of £10,000 per parking space was assumed as the averagecapital value for „off -plot‟ car parking spaces, in the high densityapartment scheme typology within the high value sales area. This valuewas on the basis of recent apartment completions within the regionalcentre, where car parking spaces have been sold separately from the

apartment unit.

A3. Average ground rent per uni t per annum ( £ )

2.35 This was assumed at £150 per dwelling as an average for all dwellingtypes and sizes, on the basis of this being a typical value in recentappraisals submitted to the city council in support of planningapplications.

A4. Ground rent yield (%)

2.36 This was assumed to be 6.5% for all residential appraisals, recognisingthat ground rent income is a secure investment.

2.37 Although a ground rent and yield has been assumed for all dwellings,the current version of the HCA DAT only calculates the revenue fromthis for apartments. As such the model under-estimates the revenue inthose schemes where houses are being provided.

Scheme timings

2.38 The HCA DAT takes into account cashflow through the course of adevelopment. As such timings for different elements of a developmentneed to be inputted into the model. The city council‟s assumptions inrelation to this are set out below.

Build period (construction start / end)2.39 Construction start was assumed as 3 months after the grant of planning

consent. This construction start time was assumed as standard for allscheme typologies to ensure consistency across the appraisals.

2.40 The build period was assumed to vary for each of the 4 schemetypologies, reflecting the different scheme sizes. A build rate of 40 unitsper annum was assumed on sites for development comprising houses.

For schemes involving apartments it was assumed that the apartmentswould be built out at a rate of 75 units per annum. These build rateshave been informed by the speed of actual delivery on residential siteswithin the city. Taking this into account, the table below sets out thebuild period assumptions for each of the scheme typologies:

Table 7 – Build period by scheme typology

Scheme typology 2ha site

Low density family housing 21 months

Mid density apartment scheme 36 months

High density apartment scheme 60 months

Mixed scheme of 80% houses and 20%apartments

27 months


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Other timings2.41 The DAT contains other timings that need to be populated. These and

the city council‟s assumptions in relation to them are set out in the tablebelow.

Table 8 – Other development timings

Timing

Overall scheme enddate

1 month after the last open market sale

First markethousing sale

4 months after the start of construction

Last market housingsale

For schemes comprising exclusively of houses, 2months after construction end

For schemes comprising of houses and apartments,4 months after construction end

For schemes comprising exclusively of apartments,6 months after construction end.

Timing of groundrent payment(month)

The same as the overall scheme end date for allresidential appraisals (i.e. one month after last openmarket sale)

B. Land acquisition costs

B1. Value at which a landowner will sell

2.42 The Local Housing Delivery Group advice on viability testing states (atpages 28 and 29) that an appropriate threshold land value should beestablished and this should represent the value at which a typicalwilling landowner is likely to release land for development, beforepayment of taxes (such as capital gains tax). The Group recommendthat the threshold land value is based on an appropriate premium topersuade landowners to sell, and that this would be in line with thereference in the National Planning Policy Framework (NPPF) to takeaccount of a “competitive return” to a willing landowner.

2.43 Existing use values (EUVs) were established for a range of existinguses across each of the five sales value areas. These EUVs werebenchmarked against data from the Valuation Office Agency (VOA)5 and values based on market evidence / discussions with Urban VisionProperty Services. They are shown in table 8 below.

5 Valuation Office Agency, Property Market Report 2011)

http://www.voa.gov.uk/publications/property_market_report/pmr-2011/pmr_2011_accessible.pdfhttp://www.voa.gov.uk/publications/property_market_report/pmr-2011/pmr_2011_accessible.pdfhttp://www.voa.gov.uk/publications/property_market_report/pmr-2011/pmr_2011_accessible.pdfhttp://www.voa.gov.uk/publications/property_market_report/pmr-2011/pmr_2011_accessible.pdf


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Table 9 – Amount required for landowners to sell

Low salesvalueareas(£/ha)

Mid/Lowsales valueareas (£/ha)

Mid valuesales areas(£/ha)

Mid/Highvalue saleareas (£/ha)

High valuesalesareas(£/ha)

Residential 600,000 850,000 1,100,000 1,350,000 1,600,000

Employment 375,000 450,000 550,000 650,000 650,000

Open Space 10,000 10,000 10,000 10,000 10,000

Town / localcentre use

750,000 750,000 750,000 750,000 750,000

Car parking 375,000 450,000 550,000 650,000 650,000

Agricultural 15,000 n/a 15,000 15,000 n/a

2.44 All of the appraisals have used the residential land value shown above.This approach recognises that the residential land value is in effect theworst case scenario (when compared to other values such as foremployment land, open space, agricultural land etc.), and that anyalternative (lower) land valuations would in any case result in a greatermargin of viability. It is considered to represent a value that wouldpersuade a landowner to sell as it would represent a competitive return.

Fees associated with land purchase

B2. Agents’ fee2.45 This represents the agents‟ fee for site acquisition payable as a

percentage of site value. This was assumed at 1% across all residentialappraisals, which is a commonly accepted figure according to the HCAEAT user manual, and consistent with the Local Housing DeliveryGroup advice (page 35).

B3. Legal fees2.46 This was assumed at £600 across all residential appraisals, which is a

commonly accepted figure according to the HCA EAT User Manual.

B4. Stamp duty2.47 The stamp duty rates6 as at July 2013 were applied as follows:

Table 10 – Stamp duty rates

Purchase price Stamp Duty (% ofpurchase price)

Up to £125,000 Nil

Over £125,000 and up to £250,000 1%

Over £250,000 and up to £500,000 3%

Over £500,000 and up to £1 million 4%

6 Gov.uk website (accessed 24 July 2013).

https://www.gov.uk/stamp-duty-land-tax-rateshttps://www.gov.uk/stamp-duty-land-tax-rateshttps://www.gov.uk/stamp-duty-land-tax-rateshttps://www.gov.uk/stamp-duty-land-tax-rates


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Over £1 million to £2million 5%

Over £2 million 7%

Over £2 million bought by corporatebodies

15%

C. Development costs

C1. Build costs 2.48 Build costs per square metre of the gross internal floorspace were

derived from Building Cost Information Service (BCIS) residential buildcost data7. This data is set out at Annex 1.

2.49 The median was considered to represent the most appropriate value onwhich to base build cost information, reflecting the fact that the mean

will be skewed by outliers and would be less representative where thesample size is small.

2.50 It is important to recognise that build costs will typically be higher inhigher value areas, reflecting the higher quality of materials, fixturesand fittings that typically feature in housing development in higher valueareas. In order to reflect this, the city council took the approach ofutilising the median build cost for the mid value sales area, the medianplus 5% for the mid / high sales value area, and the median plus 10%for the high sales value area.

2.51 It was not considered appropriate to apply build costs below themedian for the low sales value and mid / low sales value areas, as thiswould suggest that the city council is anticipating lower qualitydevelopment within these areas. In order to ensure that good qualitydevelopment can be brought forward across the city, the median buildcost data was used consistently for the mid sales value, mid / low valueand low value sales areas.

Table 11 – Build costs by type and sales value area

Low

value

(£/sqm)

Mid/low

value

(£/sqm)

Mid

value

(£/sqm)

Mid/high

value

(£/sqm)

High

value

(£/sqm)

Semi-detached (2 storey) 751 751 751 789 n/a

Townhouse (3 storey) 645 645 645 677 n/a

Detached 795 795 795 835 n/a

3 to 5 storey apartments 872 872 872 916 n/a

6+ storey apartments n/a n/a n/a n/a 1,178

7 BCIS, Build cost per sqm of gross internal floor area – location adjusted to GreaterManchester (updated 27 July 2013).


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Net to gross ratio for building costs (%)

2.52 It is necessary to apply a net to gross ratio for building costs as buildcost data is provided on the basis of gross internal floorspace, whilst

sales values are based on the net internal floorspace.

2.53 For apartments, there will be common areas (shared stairways,corridors and reception foyers) which will be accounted for within buildcost data but will not be reflected in sales values (which will be basedon the net internal floorspace of the apartment units). For apartments,an allowance was therefore made of the net internal floorspace plus15% in order to account for common areas.

2.54 For houses, there are no common areas and therefore a net to grossratio of 100% was assumed. This approach is recognised as industry

standard, according to the HCA EAT user manual.

Abnormals

C2. Decontamination costs and timing2.55 The land acquisition values (see above) were derived in the main from

the VOA property market report 2011 valuations. As already noted,residential development typologies were assumed to be based on aresidential land value (recognising that any alternative land valuationswould in any case result in a greater margin of viability).

2.56 The 2011 VOA property market report methodology (page 33) confirmsthat the identified residential land valuations are based on a beaconsuburban site of 0.5ha that is greenfield with no abnormal siteconstraints. On this basis, all appraisals made a nil allowance fordecontamination costs, recognising that any site contamination issueswould result in a reduced land purchase value, subject to the properexercise of due diligence by the site purchaser.

C3. Demolition costs and timing2.57 As with decontamination costs, the 2011 Valuation Office Agency

property market report methodology (page 33) confirms that theidentified residential land valuations are based on a beacon suburbansite of 0.5ha that is greenfield with no abnormal site constraints. On thisbasis, all appraisals made a nil allowance for demolition costs,recognising that any required demolition works would result in areduced land purchase value.

2.58 Notwithstanding this, the HCA DAT confirms that site preparation /demolition costs are included in the BCIS build values which have beenused by the city council.

C4. Infrastructure costs and timing


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2.59 This represents the total value of infrastructure costs (access roads,services and drainage, landscaping etc) across the scheme and thetiming of the payment.

2.60 The 2011 Valuation Office Agency property market report methodology

(page 33) confirms that the identified residential land valuations arebased on a beacon suburban site of 0.5ha that is greenfield, and whereservices are assumed to be available to the edge of the site.

2.61 From analysis of various development appraisals submitted as part ofschemes within Salford, and having regard to the advice of UrbanVision Property Services, an overall rate of £13,500 per dwelling wasassumed for houses, with a reduction to £5,000 per dwelling forapartments to reflect shared infrastructure cost savings.

2.62 In terms of timing of this payment, the following assumptions were

made: Start of payment – 2 months after planning permission granted (i.e.

1 month before start of construction period)

End of payment – same as end of construction

C5. Carbon emissions / code for sustainable homes2.63 A written ministerial statement of 30 July 2013 to the House of Lords by

Baroness Hanham8 confirmed there will be a requirement for a 6%improvement in the carbon emission rate over the 2010 Part L BuildingRegulation standards from 6 April 2014. This requirement will lead to

an increase in build costs that are not factored into the BCIS cost dataused in this assessment.

2.64 In August 2013 DCLG published an impact assessment relating to thechanges to Part L of the Building Regulations. This identified that theaverage extra over cost for meeting the improved carbon emission ratefrom the 2010 standard is £453 per dwelling9. This additional cost hasbeen applied to all dwellings across all of the residential appraisals.

2.65 It is not considered appropriate to make an allowance for meeting aspecific code for sustainable homes level, given that this is not

mandatory for new housing and that the government, subject to theoutcomes of a current consultation, proposes to “wind down the role ofthe Code”10.

Other scheme costs

C6. Marketing and sales fees (% of market housing value)

8 Baroness Hanham (30 July 2013) Building Regulations: Part L. Written Statementto the House of Lords 9

DCLG (August 2013) Changes to Part L of the building regulations: impactassessment (page 1, last paragraph)10 DCLG (August 2013) Housing standards review: consultation (paragraph 40)

http://www.publications.parliament.uk/pa/ld201314/ldhansrd/text/130730-wms0001.htm#13073027000025http://www.publications.parliament.uk/pa/ld201314/ldhansrd/text/130730-wms0001.htm#13073027000025http://www.publications.parliament.uk/pa/ld201314/ldhansrd/text/130730-wms0001.htm#13073027000025http://www.publications.parliament.uk/pa/ld201314/ldhansrd/text/130730-wms0001.htm#13073027000025https://www.gov.uk/government/publications/changes-to-part-l-of-the-building-regulationshttps://www.gov.uk/government/publications/changes-to-part-l-of-the-building-regulationshttps://www.gov.uk/government/publications/changes-to-part-l-of-the-building-regulationshttps://www.gov.uk/government/publications/changes-to-part-l-of-the-building-regulationshttps://www.gov.uk/government/consultations/housing-standards-review-consultationhttps://www.gov.uk/government/consultations/housing-standards-review-consultationhttps://www.gov.uk/government/consultations/housing-standards-review-consultationhttps://www.gov.uk/government/consultations/housing-standards-review-consultationhttps://www.gov.uk/government/publications/changes-to-part-l-of-the-building-regulationshttps://www.gov.uk/government/publications/changes-to-part-l-of-the-building-regulationshttp://www.publications.parliament.uk/pa/ld201314/ldhansrd/text/130730-wms0001.htm#13073027000025http://www.publications.parliament.uk/pa/ld201314/ldhansrd/text/130730-wms0001.htm#13073027000025


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2.66 Based on sample schemes within Salford, and consistent with theLocal Housing Delivery Group advice (page 35), a level of 4% wasassumed across all appraisals. The timing of this cost coincides withthe period between the first and last open market sale (seeassumptions above under „values‟).

C7. Legal fees (£ per market housing unit)2.67 £600 per market housing unit was assumed across all residential

appraisals, which is in line with established practice, according to theHCA EAT user manual.

C8. Building design fees (% of build costs)2.68 Building design fees are generally in the range of 8 to 10%, and so

having regard to this the mid-point of 9% was assumed for allappraisals.

C9. Building contingencies (% of build costs)

2.69 This reflects the percentage of build costs that are set aside forcontingencies. An average level of 4% was assumed across allresidential appraisals.

D. Finance costs

D1. Interest rates2.70 According to the HCA EAT user manual, the interest rate charged by

lenders is typically 3 – 5% above the 3 month London Inter Bank OfferRate (LIBOR) depending on the type of scheme, the perceived risk,and the experience of the developer. Reflecting current uncertainmarket conditions and recent appraisals submitted on schemes withinSalford, an interest rate of 7.51% was assumed (i.e. 7% above theLIBOR rate of 0.51% as at 22 July 2013)11.

E. Developer Overhead and Return for Risk

E1. Developer profit

2.71 This represents the developer „profit‟ before taxation as a percentage ofthe market housing value. According to the HCA EAT user manual thistypically lies within a range of between 17.5% and 20%. Having regardto current market conditions where levels of risk are high, a figure atthe top of this range was considered appropriate. A level of 20% wastherefore assumed across all residential appraisals.

Overall surplus / deficit

2.72 The potential 'surplus' / deficit available from a development wascalculated by deducting total development costs, land acquisition costs,

11 Global-rates.com (accessed 22 July 2013).

http://www.global-rates.com/interest-rates/libor/british-pound-sterling/gbp-libor-interest-rate-3-months.aspxhttp://www.global-rates.com/interest-rates/libor/british-pound-sterling/gbp-libor-interest-rate-3-months.aspxhttp://www.global-rates.com/interest-rates/libor/british-pound-sterling/gbp-libor-interest-rate-3-months.aspxhttp://www.global-rates.com/interest-rates/libor/british-pound-sterling/gbp-libor-interest-rate-3-months.aspx


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finance costs and developer profit from the total gross developmentsales value. The next section of this assessment sets out the results ofthe viability appraisals.


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3. Assessment results

3.1 Having regard to the assumptions above, 13 appraisals wereundertaken in July 2013. The different appraisals are summarised inthe table below.

Table 12 – Notional scheme appraisals

Appraisalnumber

Site size(ha) Scheme typology Sales value area

1 2.0ha High density apartments High

2 2.0ha Low density houses Mid/high

3 2.0ha Mid density apartments Mid/high

4 2.0ha Mixed houses andapartments Mid/high

5 2.0ha Low density houses Mid

6 2.0ha

Mid density apartments Mid7 2.0ha Mixed houses andapartments Mid

8 2.0ha Low density houses Mid/low

9 2.0ha Mid density apartments Mid/low

10 2.0ha Mixed houses andapartments Mid/low

11 2.0ha Low density houses Low

12 2.0ha Mid density apartments Low

13 2.0ha Mixed houses andapartments Low

3.2 It was considered appropriate to only assess the high densityapartment scheme in the high value residential sales area. This isbecause the high residential sales value areas are only within parts ofthe regional centre, and it is considered highly unlikely that anapartment scheme of 300 dwellings per hectare would be developed(or even permitted) outside of the regional centre. Lower densityschemes were not appraised in the high value areas on the basis thathigh land values and the design context of sites in these areas, meansthat such developments are unlikely to be built in those areas.

3.3 A summary for each appraisal is shown in the table below. A copy ofthe full appraisals can be found at annex 2.


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Table 13 – Findings of appraisals Appraisal Site

size(ha)

Scheme type Sales valuearea

Total capitalvalue of openmarket housing

Total capitalvalue of scheme(A)

Total directcosts (B)

Finance andacquisitioncosts (C)

Developerprofit (D)

Surplus /deficit atcompletion = A – (B+C+D)

1 2.0 High densityapartments

High value £108,900,000 £113,284,615 £65,016,415 £4,134,135 £21,780,000 £22,354,065

2 2.0 Low densityhouses

Mid/High £20,345,000 £20,345,000 £8,192,601 £3,167,436 £4,069,000 £4,915,963

3 2.0 Mid densityapartments

Mid/High £38,896,000 £39,472,923 £21,344,536 £3,332,626 £7,779,200 £7,016,561

4 2.0 Mixed Mid/High £28,015,000 £28,063,462 £11,800,065 £3,197,295 £5,603,000 £7,463,101


Mid valuearea

£17,215,000 £17,215,000 £7,765,807 £2,594,382 £3,443,000 £3,411,811


Mid valuearea

£32,912,000 £33,488,923 £20,227,316 £2,783,985 £6,582,400 £3,895,223

7 2.0 Mixed Mid valuearea

£23,925,000 £23,973,462 £11,192,245 £2,624,301 £4,785,000 £5,371,916


Mid/low value £14,085,000 £14,085,000 £7,640,607 £1,992,819 £2,817,000 £1,634,574


Mid/low value £26,928,000 £27,504,923 £19,987,956 £2,300,025 £5,385,600 -£168,657

10 2.0 Mixed Mid/low value £19,575,000 £19,623,462 £11,018,245 £2,030,135 £3,915,000 £2,660,082


Low £10,955,000 £10,955,000 £7,515,407 £1,448,785 £2,191,000 -£200,192

12 2.0

Mid densityapartments Low £20,944,000 £21,520,923 £19,748,596 £2,215,198 £4,188,800 -£4,631,671

13 2.0 Mixed Low £15,225,000 £15,273,462 £10,844,245 £2,088,599 £3,045,000 -£704,383


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3.4 As noted in chapter 2, the appraisals were run with land values and developerprofit as an input, and so therefore the output from the model is the residualsurplus / deficit (after land costs and developer profit have been deducted)which would be available to be directed towards planning obligations.

Planning obligation requirements

3.5 The planning obligations SPD sets out the financial contributions that willnormally be sought from schemes comprising ten or more dwellings. Theseare as follows:

Table 14 – Planning obligations SPD requirements

Type of contribution Houses and largeapartments

Apartments with 2bedrooms or less

Open space provision £598 per bedspace £658 per bedspace

Public realm,

infrastructure andheritage

£1,500 per dwelling £1,500 per dwelling

Construction training £150 per dwelling £150 per dwelling

Climate change £200 per dwelling £200 per dwelling

Total £1,850 per dwelling +£598 per bedspace

£1,850 per dwelling and£658 per bedspace

3.6 The educations contributions SPD sets out the financial contributions that willnormally be sought from development comprising ten or more houses.Contributions are not sought from apartments. The scale of contribution is

calculated by multiplying the pupil yield factor (calculated with regard to thenumber of bedrooms within a house) by the cost per primary pupil place. Thiscost data will be updated annually by the city council on the basis of the mostup-to-date evidence. The cost data utilised below reflects the city council‟s published 2013/14 financial year costs per primary pupil place12:

Table 15 – Education contributions SPD requirements

Size of house Primary pupil yield Cost per dwelling

1-bed house 0 n/a

2-bed house 0.11 (£9,165 x 0.11) = £1,008

3-bed house 0.22 (£9,165 x 0.22) = £2,016

4-bed house 0.33 (£9,165 x 0.33) = £3,0245-bed house 0.44 (£9,165 x 0.44) = £4,033

3.7 In addition to the financial contributions outlined above, a further charge of2.5% is added to cover the administrative costs of ensuring that thecommuted sums are directed towards appropriate schemes.

3.8 The implications of affordable housing provision on development viability arebeing considered through the production of a new housing supplementaryplanning document, and they will depend on the precise proportion, tenure

12 Salford City Council (August 2013) Education contributions SPD: background documenton cost per primary pupil place and school capacity

http://www.salford.gov.uk/educationspd.htmhttp://www.salford.gov.uk/educationspd.htmhttp://www.salford.gov.uk/educationspd.htmhttp://www.salford.gov.uk/educationspd.htmhttp://www.salford.gov.uk/educationspd.htmhttp://www.salford.gov.uk/educationspd.htm


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and type of affordable housing that is being delivered. Where the currentrequirement for 20% affordable housing would result in a development beingunviable then this or other planning obligations will be reduced accordingly toensure that an acceptable development can proceed.

3.9 Having regard to the requirements of the planning obligations and educationSPDs (but excluding affordable housing provision), the following contributionsby dwelling type and size will normally be sought:

Table 16 – Planning obligation requirements (rounded to the nearest pound)

Dwellingtype

Dwellingsize

PlanningobligationsSPD

EducationcontributionsSPD

Totalobligation

Total with2.5% admin

House 2 bed £3,644 £1,008 £4,652 £4,768

House 3 bed £4,242 £2,016 £6,258 £6,415

House 4 bed £4,840 £3,024 £7,864 £8,061

House 5 bed £5,438 £4,033 £9,471 £9,707

Apartment 1 bed £3,166 £0 £3,166 £3,245

Apartment 2 bed £3,824 £0 £3,824 £3,920

Apartment 3 bed £4,242 £0 £4,242 £4,348

3.10 Having regard to the scheme typologies highlighted in table 1 above, the totalstandard financial requirements are as follows:

Table 17 – Total planning obligations by scheme typology

Scheme

typology

Total dwellings

(2ha site)

Planning

obligationsSPD

Education

SPD

Total

planningobligations

Total with

2.5% admin

Low densityhouses

70 dwellings (70houses)

£316,674 £174,410 £491,084 £503,361

Mid densityapartments

250 dwellings(250 apartments)

£896,292 £0 £896,292 £918,699

High densityapartments

600 dwellings(600 apartments)

£2,171,160 £0 £2,171,160 £2,225,439

Mixedhouses andapartments

106 dwellings (21apartments, 85houses)

£460,128 £212,719 £672,848 £689,669

3.11 The table below shows the surplus / deficit at completion for the 13 appraisals,and the impact that the above section 106 requirements has on it.

Table 18 – Surplus / deficit after non affordable housing planning obligations

Appraisal Scheme type Sales valuearea

Surplus /(deficit) atcompletion

Totalplanningobligations

Surplus /deficit afterplanningobligations

1 High densityapartments

High value £22,354,065 £2,225,439 £20,128,626

2 Low density Mid/High £4,915,963 £503,361 £4,412,602


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Appraisal Scheme type Sales valuearea

Surplus /(deficit) atcompletion

Totalplanningobligations

Surplus /deficit afterplanningobligations

houses

3 Mid densityapartments

Mid/High £7,016,561 £918,699 £6,097,862

4 Mixed Mid/High £7,463,101 £689,669 £6,773,432

5 Low densityhouses

Mid value area £3,411,811 £503,361 £2,908,450


Mid value area £3,895,223 £918,699 £2,976,524

7 Mixed Mid value area £5,371,916 £689,669 £4,682,247

8 Low densityhouses

Mid/low value £1,634,574 £503,361 £1,131,213


Mid/low value -£168,657 £918,699 -£1,087,356

10 Mixed Mid/low value £2,660,082 £689,669 £1,970,413

11 Low densityhouses

Low -£200,192 £503,361 -£703,553


Low -£4,631,671 £918,699 -£5,550,370

13 Mixed Low -£704,383 £689,669 -£1,394,052

Implications of the assessment

3.12 The above table shows that all of the scheme types in the low value area(appraisals 11, 12 and 13) and the mid density apartment scheme in themid/low value area (appraisal 9) would be unviable, even without the paymentof any planning obligations. However, apart from these typologies, all of theremaining typologies would remain viable with the payment of planningobligations.

3.13 As noted earlier in this assessment, viability assessments can varysignificantly with only minor changes in assumptions, and therefore they canonly ever provide a relatively broad estimate of the potential scope of planningobligations. For example, if there was to be a reduced developer profit of

around 14% (instead of 20% as assumed) in the low sales value housestypology (appraisal 11) development would be viable, even with meeting theplanning obligations and education contributions SPD requirements.

3.14 Given the above, and that there are examples of schemes (both in relation tosales value area and scheme type) being built / recently completed which aretheoretically unviable as shown in table 18 above, it is considered that therequirements of the planning obligations and education contributions SPDshould be sought in all developments of 10 or more dwellings. Should it beviable to provide these requirements affordable housing should also besought. Notwithstanding this, it is recognised that in practice there will also besites that although theoretically viable as identified above, would in practicenot be so.


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3.15 Given the above, where developers consider that the cumulative effect ofpolicy requirements and planning obligations would compromise developmentviability in relation to a particular scheme, the city council should enter intonegotiations with developers to agree a reduced contribution where

appropriate. This would require appropriate evidence to be submitted to thecity council by a developer.