Table 1
Definition of Viability for Planning Purposes RICS
“An objective financial viability test of a development project to meet its costs including the cost of planning obligations, while ensuring an appro- priate Site Value for the landowner and a market risk adjusted return to the developer in delivering that project”
(where viability is being used to test and inform planning policy, it will be necessary to substitute “a develop- ment project” into a wider context)
The RICS GN has been considerably longer in gestation than that of the LHDG. As such, it has also been through several consultation exercises over the past 2 or so years. This reflects its more technical basis as a piece of guidance compared to that of the LHDG advice which has a bias towards policy and process. The LHDG advice, whilst having the benefit of seeing earlier drafts of the RICS GN, only went through a relatively limited consultation exercise, partly due to the nature and make-up of the working party which was a broad industry grouping.
Both publications define viability (Table 1) along broadly similar lines:-
The RICS GN definition explicitly separates the two key components of development: land delivery and viable development which is in accordance with the NPPF. Even if the landowner and developer are one and the same, it assists the viability assessment in a planning context to separate the two. The RICS GN also makes the point in explanatory text around the definition that fundability is intrinsic to both components. Interestingly, the LHDG links the land value to the “development proposed” which is not quite how the market works. A landowner may often be largely ambivalent as to a future proposed development and will only sell at a market level which, whilst reflecting planning policy, also has regard to the numerous ways in which a site may ultimately be developed, not a specific scheme. On closer inspection, the phraseology used in the LHDG advice may also be considered at odds with
THE TERRIER - Summer 2012 LHDG
“An individual development can be said to be viable if, after taking account of all costs, including central and local government policy and regulatory costs and the cost and availability of development finance, the scheme provides a competitive return to the developer to ensure that development takes place and generates a land value sufficient to persuade the land owner to sell the land for the development proposed. If these conditions are not met, a scheme will not be delivered.”
the context of it being for area wide viability testing.
In both supporting the above definitions and then developing the advice and guidance contained within each publication, paragraph 173 of the NPPF, with regard to viability and deliverability, is quoted:-
“Pursuing sustainable development requires careful attention to viability and costs in plan-making and decision- taking. Plans should be deliverable. Therefore, the sites and the scale of development identified in the plan should not be subject to such a scale of obligations and policy burdens that their ability to be developed viably is threatened. To ensure viability, the costs of any requirements likely to
Table 2 RICS GN Site Value for Viability Testing Scheme Specific
“Site Value should equate to the Market Value1
subject to the following assumption:
that the value has regard to development plan policies and all other material planning considerations and disregards that which is contrary to the development plan.”
Area-Wide
“The Site Value (…) may need to be further adjusted to reflect the emerg- ing policy / CIL charging level. The level of adjustment assumes that site deliv- ery would not be prejudiced. Where an adjustment is made, the practitioner should set out their professional opinion underlying the assumptions adopted. These include as a minimum, comments on the state of the market and delivery targets at the date of assessment.”
1. The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after properly marketing and where the parties had each acted knowledgeably, prudently and without compulsion (RICS Valuation – The Standards)
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be applied to development, such as requirements for affordable housing, standards, infrastructure contributions or other requirements should, when taking account of the normal cost of development and mitigation, provide competitive returns to a willing land owner and willing developer to enable the development to be deliverable.”
This is likely to become one of the most analysed and quoted paragraphs of the NPPF, when it comes to viability in practice, not least because of the reference to “competitive returns” in respect of both land and development. The RICS GN specifically defines and links competitive returns to its definition of Site Value and the Market Risk Adjusted Rate of Return for a development. The LHDG advice is more generalised in its conformity to the NPPF in this respect and much less detailed in what competitive returns mean for land value and subsequent development (see below).
The RICS GN provides 2 definitions of Site Value for the purposes of scheme specific and area-wide assessments respectively, using well understood terminology (Table 2):-
The RICS GN provides significant explanatory text around the above definitions, both in the main part of the guidance and supporting
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