This is all that needs to be entered, the transfer button is then pressed to complete, and the valuation appears at the top of the screen.
Next, this value is compared with the additional Open Market revenue expected to be generated to estimate the increased viability.
Worked example
Using the value computed above for 3 units of affordable housing as £190,457, assuming hypothetical sales values we might find
2 bed house 3 bed house 4 bed house Total
£150k £200k £250k £600k
In this case our first estimate of:
£ Change in Viability =£ Change in Total Revenue =£ Additional Open Market Sales - £ Affordable Housing Revenue forgone =£600k - £191k =£409k
If we were to agree the scheme funder required the developer to return 15% of GDV on all private sales then we would allow 15% x £600k=£90k additional return, from which we would deduct the lower return originally allowed on the affordable housing, say £30k. In this case the revised sum would be
£409k – (£90k-£30k) Commuted sum =£349k
Using the results, and open issues
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. However the above analysis makes a number of simplifications and further allowances may be allowed during negotiations. For example, it is assumed that build costs are constant. In most cases the physical build will not be re-planned beyond minor changes to the finishing specifications, which will be made to suit the revised tenure. For example the
THE TERRIER - Summer 2012
kitchen and bathroom finishing may be upgraded, whereas elements of, for example, the code for sustainable homes or secured by design may not be completed. These changes are generally broadly cost neutral, but the impact may vary from case to case.
A second issue is that the developer may claim the extra private sale units require a higher margin to reflect risk, and if agreed, an adjustment might be made for this. Conversely the revenue per unit may be enhanced on a single tenure scenario. The over arching point is that the estimate using the DAT model gives a benchmark against which a negotiated value may be assessed.
It is crucial that the rent entered into the model is the value that the registered provider will benefit from. For Affordable Rent this value is after the scale down (normally 80%) from market rents, as this is the amount the provider will receive. Similarly it will exclude any service charge, as this is an amount merely collected for on-payment to service providers. The model can be used, by changing rents, to assess the change in affordable housing value in moving from, say, Social ‘controlled’ Rents to Affordable Rents.
Finally it is worth noting that DAT does allow slightly more involved valuations to be made using inflated cash flows over a fixed 30 year period, which is often the method registered providers adopt (details can be provided by emailing
DATenquiries@hca.gsi.gov. uk). Provided a suitable yield is used the simpler method illustrated here is reasonable.
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