Financial sustainability is central to the planning process
Changes to national planning policy mean that the financial sustainability of property developments plays an increasingly important role in the planning and plan-making process, according to a new report
Finance has always been key to the success of any development but, according to a new study by planning and development consultancy Lichfields, changes to national planning policy and related practical guidance have changed the focus and priority – and this requires a change of approach for those seeking to promote the local plan process.
The research, Fine Margins: Viability Assessments in Planning & Plan-making, examines how viability assessments are conducted and for the purpose of area-wide viability studies to inform local plan preparation.
“Increasingly, there is a ‘frontloading’ of viability assessments to the plan development stage. The impact and shift in focus cannot be overstated. Financial viability assessments are now largely in the realm of planning,” said Simon Coop, Planning Director at Lichfields.
“Recent evidence we have collected and analyzed in the residential housing market suggests that the strength of local plans is increasingly being fought over in a battleground of sustainability.
“Sustainability is an essential but often misunderstood concept that is central to the delivery of housing sites and the successful implementation of local plan strategies.”
Balancing GDV and total development costs
In simple terms, the report states, sustainability refers to the relative balance between the value generated by development (GDV) and the total costs associated with achieving that development.
If the GDV is equal to or greater than the total cost, the scheme is viable. If not, development delivery could be jeopardized unless additional funding is secured or costs are reduced.
Will Christiansen, who did much of the research for the report, said that traditionally financial viability assessments were usually done through business surveys, often later in the planning and development process.
However, changes to national planning policy and related practice guidance in England and Wales present significant challenges for developers and planners.
This largely relates to the policy of ‘looking ahead’ to considering development sustainability, so that it is given greater prominence at the stage of preparing the strategic plan.
“The significance of these changes cannot be overstated: recent evidence suggests that the strength of local plans is increasingly being fought over in a sustainability battleground,” the report says.
The assumption that arises from “frontloading” is that promoters who agree with the strategic plan will be viable. An applicant must demonstrate why the viability of its development is compromised due to a change in circumstances since the adoption of the plan.
However, local plans provide a framework for long-term development and it is essential that they are flexible enough to take account of changing circumstances, such as rising costs and potential changes in development values over the years. next 10 to 15 years.
While some situations, such as the Covid-19 pandemic, cannot reasonably be anticipated by policymakers, the cyclical nature of the economy highlights the need for flexibility, the report says.
Sustainability becomes increasingly important in times of economic downturn, which may require local authorities to adapt in their application of planning obligations and requirements so that development can continue to take place in the right places while throughout the plan period.
The new approach to sustainability also emphasizes the importance of full engagement in the plan preparation process by those seeking to promote land for development.
The report indicates that the focus should be on:
- Demonstration that their site is deliverable from a financial and technical viability point of view
- Review of proposed allocations that are not considered viable or deliverable.
- Ensure that the council’s viability assessment considers an appropriate range of development typologies and that these reflect the local area.
- Provide strong input into the assessment of the viability of the board with respect to development costs and values so that it can inform sound policy choices.
- Ensure that the viability assessment considers all relevant issues – for example, the viability implications of design standards and environmental requirements, rather than focusing solely on the requirements of Section 106 and the community levy on infrastructure (CIL).
- Ensure that a balance is struck between the need to meet CIL-funded affordable housing or infrastructure requirements and the importance of ensuring that the broader deliverability of the development is not compromised.
- Establish reasonable land value expectations for landowners and site developers.
Christiansen said the study aims to reduce confusion and create more meaningful debate between developers, planners and local authorities.
“The changes introduced in 2019 are really starting to impact the industry,” he said.
“There is widespread confusion in planning practices and advice, and this overview aims to demystify some of that and become a key reference document in the industry.”
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