Posted on May 16, 2018

Draft National Planning Policy Framework and the removal of viability Paragraph 173

The Ministry of Housing Communities & Local Government (MHCLG) recently closed its consultation on the draft National Planning Policy Framework.  This involved wide-ranging consultation on all chapters of the NPPF.  The MHCLG also published the Draft Planning Practice Guidance for Viability.

We set out below some extracts of our representations – specifically those focusing on viability.

 The first thing to note is that the draft NPPF removes the notorious paragraph 173 from the 2012 NPPF. This stated:

 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 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 (our emphasis).

 This paragraph set out the test for viability. It created the need for the residual land value (RLV) of a scheme to be benchmarked against the Threshold Land Value (TLV) (sometimes also known as the Benchmark Land Value).

 Now that Paragraph 173 is gone, Chapter 3 (Plan-Making) of the draft NPPF sets out the tests of soundness for a Plan – paragraphs 34 and 58 within this chapter contain the new references to viability.

 Paragraph 34 states:

 Plans should set out the contributions expected in association with particular sites and types of development. This should include setting out the levels and types of affordable housing provision required, along with other infrastructure (such as that needed for education, health, transport, green and digital infrastructure). Such policies should not make development unviable, and should be supported by evidence to demonstrate this (our emphasis). Plans should also set out any circumstances in which further viability assessment may be required in determining individual applications.

 Paragraph 58 then states:

 Where proposals for development accord with all the relevant policies in an up-to-date development plan, no viability assessment should be required to accompany the application. Where a viability assessment is needed, it should reflect the recommended approach in national planning guidance, including standardised inputs, and should be made publicly available.

 The original paragraph 173 was poorly drafted and failed to adequately define the requirements for the TLV. This ambiguity left it open to challenge.

However, is the draft text any better? Viability is now referenced in the draft NPPF, but nowhere is it defined. It is still very important to define what is meant by ‘viable’ for Plan Making and Decision Taking.  There are clues to this in the draft PPG (see below), but the test needs to be clear in the NPPF. Otherwise the guidance is unfounded. 

 Based on the draft PPG, we can infer that the viability test is as follows:

 Residual Land Value (RLV) >= Existing Use Value (EUV) + a premium.

 However, the NPPF does not specify this anywhere. On this basis, some may infer that a viable scheme involves one where the RLV is simply positive, or that the RLV is greater than the EUV. This needs to be clarified.

 We recommended to MHCLG that the NPPF include a clear paragraph which states that the viability test is to be based on policy compliant RLV >= EUV + premium approach.

 Further to this, paragraph 176 has been deleted from the draft NPPF.  This stated:

 ’Where safeguards are necessary to make a particular development acceptable in planning terms (such as environmental mitigation or compensation), the development should not be approved if the measures required cannot be secured through appropriate conditions or agreements.’ 

 This was an important safeguard / test which has now gone.

 In parallel to the draft NPPF text, MHCLG published the draft PPG for Viability. We make various observations on the draft text:

 The PPG requires that plans should set out circumstances in which viability assessment at the decision making stage may be required.  This is fine, but the government envisages this is to be the exception rather than the rule. Some examples would therefore be useful e.g. where sites are heavily contaminated, require Listed Building enabling development, or are windfall sites etc.

• How should strategic sites be assessed for viability in plan making? – We question what level of detail is required (given that this is an early allocations stage and the level of detail may be lacking)? We recommended that the NPPF makes it clear that this is to be proportionate. A greenfield site with no particular abnormal costs over the usual infrastructure in the South East of England IS viable.  Therefore, should there be a lesser amount of detail required for the Examination in Public?  The NPPF should make it clear that this is a ‘light-touch’ approach; the LPA is to allow room for the developer and the landowner to negotiate the proceeds of development between profit and land value.  Conversely, more detailed scrutiny may be required in (say) the context of a strategic brownfield regeneration site in north of England which requires remediation – particularly where the LPA may be relying on the site for housing numbers.  Further guidance is required from government on level of details / scrutiny to prevent the EiP system becoming further ‘bogged-down’ in detailed viability arguments.
• Changes between Plan Making stage and Decision Taking – the PPG requires that where a viability assessment is submitted to accompany a planning application this should be based upon and refer back to the viability assessment that informed the plan. The applicant should provide evidence of what has changed since then.  Anyone who heard the Prime Minister at the launch of the consultation will be aware of the government’s exasperation with strategic site promotors saying that an allocation is viable only to be told by house-builders at detailed planning stage that the scheme is not viable.
• Review mechanisms and overage – MHCLG consulted on review mechanisms be used to amend developer contributions during the lifetime of a project and also review mechanisms be used to apportion any significant increase in the gross development value of a development.  We recommended that is good practice particularly for larger sites.  However, this has to be both ways (upside and downside) and should be at the discretion of the Local Authority.
• Standardised inputs to viability assessment.  We identified various issues with this section.  We recommend a new introductory paragraph to confirm that the standard inputs refer to Plan Making or Decision Taking – or, both.  The PPG also needs to refer back to a ‘new paragraph 173’ in the NPPF which defines the viability test (see above). Furthermore, we recommend to MHCLG that the PPG text needs to be clearer when defining inputs.  The emphasis is on EUV + Premium, but the text describes (badly) RLV inputs.
• Price paid for land – The draft PPG states that the price paid for land is not relevant justification for failing to accord with relevant policies in the plan.  However, the price paid for the land IS relevant where the developer’s viability statement includes a TLV which is greater than the agreed purchase price.  This could lead to windfall profits at the expense of public benefit.
• Profit – The PPG provides that for the purpose of plan making an assumption of 20% of Gross Development Value (GDV) may be considered a suitable return to developers in order to establish viability of the plan policies. A lower figure of 6% of GDV may be more appropriate in consideration of delivery of affordable housing in circumstances.  This will become the ‘norm’ for Plan making parameters.

 The government’s clear intent with the draft NPPF and PPG is to put the ‘viability genie’ firmly back into the bottle and stop the ‘circularity’ of ever increasing land values fuelled by non-policy-compliant valuations.  This is not easy – given that the genie has been out of the bottle for a number of years already.  However, the important thing is how the industry responds.  A national house-builder recently stated that house-builders, ‘like policies that moderate land values’.  However, what they don’t like is, ‘landowners who will not sell land’.

 

We await the adopted policy with interest.