What exactly is affordable housing?
How is Financial Viability calculated?
What to look for in FVA (Financial Viability Assessment)
About the Speaker, Professor Stephen Walker:
Professor Stephen Walker is an expert in development appraisal and economic viability. He specialises in affordable housing, planning obligations and developer contributions from all perspectives – e.g.: Applicants, Local Planning Authorities, Planning Inspectors and communities and he lectures at Brookes University, Oxford
Video 01 - Questions to ask & Viability:
3-minute video
Some questions to ask about land values, development values and Planning Policies, plus information about how changes in market conditions affect viability and availability of affordable housing.
Video 02 – Development value & cost:
8-minute video
What cost elements are included in a scheme’s Gross Development Value, how they are calculated and which elements have the greatest impact on the budget to buy the land (the Net Land Bid Budget or BMLV – Bench Mark Land Value ). This will affect the financial viability of the scheme. The need to follow NPPF and Government guidance on viability in relation to openness, standardised Variables, published outputs, etc.
Video 03 – Conclusions:
8-minute video
How the demand for the land can determine its maximum bid value and how land use and local planning decisions can determine its value. Practices of “land banking”, “land options” and how the land market works. Costs of remediating brownfield sites and what are referred to as “abnormal” costs. Need to follow clear instructions over what is meant by abnormal costs as set out by the RICS (Royal Institution of Chartered Surveyors). Do developers allow for 150% Tax Relief reclaimable on Land reclamation work?
Video 04 – Developers’ profits & infrastructure needs:
9-minute video
Data from HM Government using FAME (Financial Management Made Easy), compares the the profit % used in FVA calculations and how the profits change over time. The effect of the 2008 Financial crash on profits for some developers and how those delivering affordable housing were not so badly affected when working for Registered Providers and Housing Associations with Homes England funding. How do some developers make “super normal” profits and how their performance has changed in recent years. The impact of local planning processes, the effects on types of development and impacts on local infrastructures.
Video 05 – Developer Contributions:
5-minute video
Section 106 Legal Agreements – where, when, and how they can be applied. The need for them to be signed as an input to the Planning Approval process. Affordable Housing is also delivered using S106.
Video 06 – Affordable Housing:
3-minute video
The types of Affordable Housing products (e.g. Discounted sales prices, First Homes, Affordable Homes and Social Homes for rent). The effect of AH on the budget to buy the land.
Image courtesy of the Brighton And Hove Community Land Trust - Oct 2019
Video 07 – S106 and CIL:
9-minute video
Local Authorities can choose whether to adopt a CIL, subject to a Whole Plan Viability Assessment. CIL re-allocates some of the money, that would have been allowed for S106, to CIL. Once Planning Permission is granted, CIL has to be paid. CIL supports local infrastructure within the whole of the Planning Authority, and not to the development funding the CIL. What CIL can be spent on and when it can be spent. Information available in the Infrastructure Funding Statement (IFS). How S106 and CIL compares.
Video 08 – FVA Spreadsheet demonstration:
24-minute video
Separate approaches for residential and commercial developments. Where to find the data to input to the spreadsheet. The need for good quality data and where the need for accuracy is greatest. How Affordable Housing must meet nationally prescribed housing standards to receive Homes England funding (e.g. min home size 60m2). Types of costs to be input and how to express percentages. Calculates the output as the amount of money available at the end of the development, adjusted to present day values, to buy the land (not the actual purchase price). Commercial development values are subject to rent and yield (i.e. probability of not receiving rent).
Video 09 – Green Book Valuation spreadsheet:
14-minute video
A demonstration of how changes in Government policies affect land values. This refers to the HM Treasury (2022) The Green Book, and uses a spreadsheet compiled by Prof Stephen Walker, using data relating to a notional housing scheme in Brighton. This shows the impact of policies such as Affordable Housing, S106 Costs, CIL, Additional Development Costs (e.g. remediation), Strategic Infrastructure costs (e.g. access bridges, etc), Median Build Prices (e.g. where higher build costs may be incurred). This shows the impact of each of these costs on the Land Value Estimate Budget.
Video 10 – Viability review Mechanisms:
3-minute video
Where there is doubt about viability, especially with schemes being built over a number of years, prices and costs may change. If circumstances do change, there may be a need to review the viability position, with shared benefits if the position does improve. The review process would need to be signed as part of the S106 agreement. The Review would be carried out independently in an “Open Book” approach, in line with National Guidance, with developer paying the cost of the review, as carried out in other parts of the UK .