Property Development: are housing targets financially viable?
It’s no secret that the UK is in the midst of a Housing Crisis, and there are many reasons as to why we are where we are, however, the underlying issue is simply that there’re not enough affordable homes. James Brokenshire, Housing Secretary, has been tasked with meeting the target of 300,000 homes-a-year by the mid-2020s. However, with national building costs increasing to up to 5% in 2018, it’s not financially viable for housing developers and builders to deliver the required sites along with the necessary Section 106 (S106) Planning Obligations and Community Infrastructure Levy (CIL) contributions.
What are S106 Planning Obligations?
Planning obligations are a legal obligation agreed between a local authority and a developer. They are most commonly used to secure affordable housing, however, they’re also used to secure financial contributions to support infrastructure surrounding a new development such as health care, education and open space provision.
S106 Planning Obligations are based on the specific needs of the local community. Many councils use the number of proposed dwellings being delivered on site to decide what this charge should be. For example, a council might ask for a contribution to the local school in an area with limited school places.
What are CIL Contributions?
Introduced by the Planning Act 2008, CIL Contributions are more transparent than S106 Planning Obligations as they are tariff based and a set contribution per square metre of development in order to cover a larger number of community improvements. There is no set national tariff for CIL Contributions, and these differ across local authorities.
Financial Viability in Planning
In the past few years, we have seen Northumberland, Newcastle and Tyneside Councils put forward local plans in order to set a framework of development up until 2036. Many sites have been put forward by landowners and developers, however, despite achieving planning permission, many sites are undeliverable due to increasing build costs and financial contributions that are requested, as detailed above.
In order to solve the housing crisis, it is essential that house builders have their project professionally valued so that they can negotiate contributions with local authorities in order to make a site financially viable and deliverable.
How Can We Help?
With George F. White’s knowledge of the development and valuation process, a comprehensive appraisal can be undertaken to illustrate to local authorities whether a site with planning permission, including S106 and CIL, contributions is financially viable. The aim of such an exercise is to negotiate relief from such burdens to allow a site to come forward.
Viability Appraisals are often most effective in areas where the local residential market is weak but development costs are increasing, which can be seen across the development industry at a national level. George F. White can provide you with advice, evidence and professional valuations so that negotiations with the local authority can be undertaken.
For help and advice on Financial Viability in Planning, please contact Matthew Simpson.