ESTIMATING COMMUTED SUMS FOR AFFORDABLE HOUSING – THE HCA DEVELOPMENT
APPRAISAL TOOL Paul Morley
Paul Morley (author) is a Senior Manager (Housing Supply & Viability) at the Homes and Communities Agency (HCA) and a member of the Chartered Institute of Management Accountants. He provides advice on viability matters to the HCA operating area teams.
paul.morley@
hca.gsi.gov.uk
Nick Enge (contributor) is an Area Manager for Norfolk and Suffolk at the HCA and is a RICS Chartered Planning and Development Surveyor with experience of residential and commercial developments and regeneration schemes. Nick’s work at the HCA focuses on providing advice to local authorities across Norfolk and Suffolk on affordable housing, viability assessment, delivery of housing development and partnership working. If you want any advice on any development, affordable housing or viability issues Nick is happy to take your enquiries and can be contacted by email:
nick.enge@hca.gsi.gov.uk
“If the commuted sum payable matches the true viability impact then the move to ‘off site’ provision should have no impact on residual land value.”
It is normal policy for local authorities to prefer s106 Affordable housing to be provided on site in order to create balanced mixed communities, and this is a policy the HCA itself strongly supports. However in particular situations it can
THE TERRIER - Summer 2012
become necessary to take a commuted sum in lieu of such provision, in which case the question arises of agreeing an appropriate sum to be contributed. How to value an appropriate sum is a question the HCA has been asked by local authorities on a number of occasions, so a suggestion is made here in the expectation that it may be of use to others.
In order to inform the decision on size of the sum required the key value to be estimated is the additional profit the scheme may be expected to generate if all units are sold on the open market. This will give a ‘benchmark’ that can be used in negotiations with the land owner.
If we make an initial assumption that total build costs will not be materially
changed by these modifications, then the impact on profit can be estimated as:
£ Change in Viability = £ Change in Total Revenue
= £ Additional Open Market Revenue - £ AH Revenue forgone
Assuming the planning applicant has previously provided an agreed viability assessment, it should be fairly straightforward to estimate the sales revenue that should be achieved from the additional sales, by multiplying the number and values of additional units sold for each property type. The main issue then becomes the value of affordable housing foregone. A Registered Provider connected with
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