Housing viability
assessment
August 2013
Contents
Chapter
Page
number
1.
Introduction
2.
3.
Assessment results
Annexes
1.
2.
Appraisals 1-13
20
1.
Introduction
1.1
1.2
This is a strategic assessment, and does not seek to test the viability of
specific sites. It assesses the viability of average sites. Inevitably the
economics of individual schemes will vary considerably, with some
being more viable and some less viable.
1.3
In producing this assessment, regard has been had to the advice for
planning practitioners that was produced by the Local Housing Delivery
Group1. The viability assessments have been run using the Homes and
Communities Agency development appraisal tool.
1.4
Local Housing Delivery Group (June 2012) Viability testing local plans. Advice for
planning practitioners
2.
2.1
2.2
2.3
2.5
The precise mix on actual sites will of course vary from the above
typologies on a site by site basis. However, collectively the chosen
typologies are considered to cover the broad range of schemes that are
likely to come forward for development in the city, having regard to past
completions, sites with planning permission for housing, and the type
and density of schemes identified in the city councils strategic housing
land availability assessment as being developable for new housing in
the future.
2.6
appraisals, but this was not considered necessary given that it is not
likely that site size would have a notable difference on the ability of
different sites to support planning obligations at different levels.
2.7
2.8
The table below shows the total number of dwellings in each of the
scheme typologies, and also shows the split by size (number of
bedrooms) and type.
Mid-density
apartment
scheme (125dph)
High density
apartment
scheme (300dph)
Mixed scheme of
80% houses (at
35dph) and 20%
apartments (at
125dph).
8 x 2 bed semis
25 x 3 bed townhouses
25 x 4 bed townhouses
8 x 4 bed detached
4 x 5 bed detached
99 x 1 bed apartments
138 x 2 bed apartments
13 x 3 bed apartments
200 x 1 bed apartments
380 x 2 bed apartments
20 x 3 bed apartments
8 x 1 bed apartments
13 x 2 bed apartments
8 x 2 bed semis
32 x 3 bed townhouses
31 x 4 bed townhouses
10 x 4 bed detached
4 x 5 bed detached
Having established the mix of dwellings for the different generic site
types, it was necessary to estimate the total floorspace in each of them,
given that the appraisals need to include an allowance for build costs
and sales costs on a cost per square metre basis.
Housing Corporation (Published May 2007, updated April 2008) 721 Housing
Quality Indicators Form
250 dwellings
99 x 1 bed
apartments
138 x 2 bed
apartments
13 x 3 bed
apartments
Floorspace
8 x 70sqm
25 x 105sqm
25 x 120sqm
8 x 125sqm
4 x 160sqm
99 x 50sqm
138 x 65sqm
13 x 80sqm
Total net
floorspace =
14,960sqm
+15% for
common areas =
2,244sqm
High density
apartment
scheme (300dph)
600 dwellings
200 x 1 bed
apartments
380 x 2 bed
apartments
20 x 3 bed
apartments
Total gross
floorspace =
17,204sqm
200 x 50sqm
380 x 65sqm
20 x 80sqm
Total net
floorspace =
36,300sqm
+15% for
common areas =
5,445 sqm
+ 300 basement
car parking
Scheme typology
Floorspace
spaces at 25sqm
each = 7,500sqm
Mixed scheme of
80% houses (at
35dph) and 20%
apartments (at
125dph).
106 dwellings
8 x 1 bed
apartments
13 x 2 bed
apartments
8 x 2 bed semis
32 x 3 bed
townhouses
31 x 4 bed
townhouses
10 x 4 bed
detached
4 x 5 bed
detached
Total gross
floorspace =
49,245sqm
8 x 50sqm
13 x 65sqm
8 x 70sqm
32 x 105sqm
31 x 120sqm
10 x 125sqm
4 x 160sqm
Total net
floorspace =
10,775sqm
+15% for
common areas in
apartments =
187 sqm
Total gross
floorspace
=10,962sqm
2,600 to 3000
Areas
Regional Centre within the inner
relief route, and Salford Quays
Worsley, South Swinton, and Chat
Moss
Sales value
area
Mid
Areas
2,200 to 2,600
Mid / low
1,800 to 2,200
Low
1,400 to 1,800
2.27 The plan below identifies the boundaries of these defined value areas.
10
2.28 For the purposes of this housing viability assessment the sales value
areas have been reviewed in order to assess whether they continue to
provide an appropriate basis for defining value areas across the city.
This was done by looking at the sales values per square metre in new
build developments that are currently being marketed in the city, and
utilising proposed sales values that have been submitted to the city
council recently as part of viability evidence supporting planning
applications (and subsequently verified as being appropriate by Urban
Vision Property Services).
2.29 The conclusion from this exercise was that the sales value areas
identified in the AHEVA remain valid.
2.30 The Local Housing Delivery Group advice on viability testing states at
page 34 that when considering information on sales values and rates,
care should be taken to reflect current market conditions having regard
to net sales revenues achieved rather than asking prices. (Net revenue
is the actual revenue received by the home builder after allowing for
discounts, sales incentives etc).
2.31 The value areas highlighted above were identified having regard to
asking prices. As noted in the Local Housing Delivery Group advice,
account needs to be had to actual sales values. Having regard to this,
and in order to ensure that viability in the appraisals was not over
estimated, the lower asking price value (within the range identified for
each sales value area) has been inputted into the DAT as follows:
Table 6 Sales value per sqm used in appraisals
Sales value
Sales value per
Sales value per
area
sqm
sqm used in
appraisals
High
Over 3,000
3,000
Mid / high
2,600 to 3000
2,600
Mid
2,200 to 2,600
2,200
Mid / low
1,800 to 2,200
1,800
Low
1,400 to 1,800
1,400
A2. Car parking
2.32 The HCA DAT manual is clear that this element of the model relates to
off-plot car parking spaces, such as those in basements, where the
spaces are sold separately from the dwelling (and are not therefore
included in the sales price). This provides additional capital value in a
scheme.
2.33 As noted above, it was assumed that the provision of off-plot residential
car parking spaces only applies to the high density apartment scheme
(300dph) typologies, in the high value area (i.e. some parts of the
regional centre). The provision of car parking spaces was assumed at
50% of the number of apartments in each scheme.
11
2.34 A value of 10,000 per parking space was assumed as the average
capital value for off-plot car parking spaces, in the high density
apartment scheme typology within the high value sales area. This value
was on the basis of recent apartment completions within the regional
centre, where car parking spaces have been sold separately from the
apartment unit.
A3. Average ground rent per unit per annum ()
2.35 This was assumed at 150 per dwelling as an average for all dwelling
types and sizes, on the basis of this being a typical value in recent
appraisals submitted to the city council in support of planning
applications.
A4. Ground rent yield (%)
2.36 This was assumed to be 6.5% for all residential appraisals, recognising
that ground rent income is a secure investment.
2.37
Although a ground rent and yield has been assumed for all dwellings,
the current version of the HCA DAT only calculates the revenue from
this for apartments. As such the model under-estimates the revenue in
those schemes where houses are being provided.
Scheme timings
2.38 The HCA DAT takes into account cashflow through the course of a
development. As such timings for different elements of a development
need to be inputted into the model. The city councils assumptions in
relation to this are set out below.
Build period (construction start / end)
2.39 Construction start was assumed as 3 months after the grant of planning
consent. This construction start time was assumed as standard for all
scheme typologies to ensure consistency across the appraisals.
2.40 The build period was assumed to vary for each of the 4 scheme
typologies, reflecting the different scheme sizes. A build rate of 40 units
per annum was assumed on sites for development comprising houses.
For schemes involving apartments it was assumed that the apartments
would be built out at a rate of 75 units per annum. These build rates
have been informed by the speed of actual delivery on residential sites
within the city. Taking this into account, the table below sets out the
build period assumptions for each of the scheme typologies:
Table 7 Build period by scheme typology
Scheme typology
Low density family housing
Mid density apartment scheme
High density apartment scheme
Mixed scheme of 80% houses and 20%
apartments
12
2ha site
21 months
36 months
60 months
27 months
Other timings
2.41 The DAT contains other timings that need to be populated. These and
the city councils assumptions in relation to them are set out in the table
below.
Table 8 Other development timings
Timing
Overall scheme end 1 month after the last open market sale
date
First market
4 months after the start of construction
housing sale
Last market housing For schemes comprising exclusively of houses, 2
sale
months after construction end
For schemes comprising of houses and apartments,
4 months after construction end
For schemes comprising exclusively of apartments,
6 months after construction end.
Timing of ground
The same as the overall scheme end date for all
rent payment
residential appraisals (i.e. one month after last open
(month)
market sale)
The Local Housing Delivery Group advice on viability testing states (at
pages 28 and 29) that an appropriate threshold land value should be
established and this should represent the value at which a typical
willing landowner is likely to release land for development, before
payment of taxes (such as capital gains tax). The Group recommend
that the threshold land value is based on an appropriate premium to
persuade landowners to sell, and that this would be in line with the
reference in the National Planning Policy Framework (NPPF) to take
account of a competitive return to a willing landowner.
2.43 Existing use values (EUVs) were established for a range of existing
uses across each of the five sales value areas. These EUVs were
benchmarked against data from the Valuation Office Agency (VOA)5
and values based on market evidence / discussions with Urban Vision
Property Services. They are shown in table 8 below.
13
High value
sales
areas
(/ha)
Residential
600,000
850,000
1,100,000
1,350,000
1,600,000
Employment
375,000
450,000
550,000
650,000
650,000
Open Space
10,000
10,000
10,000
10,000
10,000
Town / local
centre use
750,000
750,000
750,000
750,000
750,000
Car parking
375,000
450,000
550,000
650,000
650,000
Agricultural
15,000
n/a
15,000
15,000
n/a
2.44 All of the appraisals have used the residential land value shown above.
This approach recognises that the residential land value is in effect the
worst case scenario (when compared to other values such as for
employment land, open space, agricultural land etc.), and that any
alternative (lower) land valuations would in any case result in a greater
margin of viability. It is considered to represent a value that would
persuade a landowner to sell as it would represent a competitive return.
Fees associated with land purchase
B2. Agents fee
2.45 This represents the agents fee for site acquisition payable as a
percentage of site value. This was assumed at 1% across all residential
appraisals, which is a commonly accepted figure according to the HCA
EAT user manual, and consistent with the Local Housing Delivery
Group advice (page 35).
B3. Legal fees
2.46 This was assumed at 600 across all residential appraisals, which is a
commonly accepted figure according to the HCA EAT User Manual.
B4. Stamp duty
2.47 The stamp duty rates6 as at July 2013 were applied as follows:
Table 10 Stamp duty rates
Purchase price
Up to 125,000
Over 125,000 and up to 250,000
Over 250,000 and up to 500,000
Over 500,000 and up to 1 million
6
Stamp Duty (% of
purchase price)
Nil
1%
3%
4%
14
5%
7%
15%
C. Development costs
C1. Build costs
2.48 Build costs per square metre of the gross internal floorspace were
derived from Building Cost Information Service (BCIS) residential build
cost data7. This data is set out at Annex 1.
2.49 The median was considered to represent the most appropriate value on
which to base build cost information, reflecting the fact that the mean
will be skewed by outliers and would be less representative where the
sample size is small.
2.50 It is important to recognise that build costs will typically be higher in
higher value areas, reflecting the higher quality of materials, fixtures
and fittings that typically feature in housing development in higher value
areas. In order to reflect this, the city council took the approach of
utilising the median build cost for the mid value sales area, the median
plus 5% for the mid / high sales value area, and the median plus 10%
for the high sales value area.
2.51 It was not considered appropriate to apply build costs below the
median for the low sales value and mid / low sales value areas, as this
would suggest that the city council is anticipating lower quality
development within these areas. In order to ensure that good quality
development can be brought forward across the city, the median build
cost data was used consistently for the mid sales value, mid / low value
and low value sales areas.
Table 11 Build costs by type and sales value area
Low
Mid/low
Mid
value
value
value
(/sqm) (/sqm) (/sqm)
Mid/high
value
(/sqm)
High
value
(/sqm)
Semi-detached (2 storey)
751
751
751
789
n/a
Townhouse (3 storey)
645
645
645
677
n/a
Detached
795
795
795
835
n/a
3 to 5 storey apartments
872
872
872
916
n/a
6+ storey apartments
n/a
n/a
n/a
n/a
1,178
BCIS, Build cost per sqm of gross internal floor area location adjusted to Greater
Manchester (updated 27 July 2013).
15
16
2.59 This represents the total value of infrastructure costs (access roads,
services and drainage, landscaping etc) across the scheme and the
timing of the payment.
2.60 The 2011 Valuation Office Agency property market report methodology
(page 33) confirms that the identified residential land valuations are
based on a beacon suburban site of 0.5ha that is greenfield, and where
services are assumed to be available to the edge of the site.
2.61 From analysis of various development appraisals submitted as part of
schemes within Salford, and having regard to the advice of Urban
Vision Property Services, an overall rate of 13,500 per dwelling was
assumed for houses, with a reduction to 5,000 per dwelling for
apartments to reflect shared infrastructure cost savings.
2.62 In terms of timing of this payment, the following assumptions were
made:
Baroness Hanham (30 July 2013) Building Regulations: Part L. Written Statement
to the House of Lords
9
DCLG (August 2013) Changes to Part L of the building regulations: impact
assessment (page 1, last paragraph)
10
DCLG (August 2013) Housing standards review: consultation (paragraph 40)
17
2.66 Based on sample schemes within Salford, and consistent with the
Local Housing Delivery Group advice (page 35), a level of 4% was
assumed across all appraisals. The timing of this cost coincides with
the period between the first and last open market sale (see
assumptions above under values).
C7. Legal fees ( per market housing unit)
2.67 600 per market housing unit was assumed across all residential
appraisals, which is in line with established practice, according to the
HCA EAT user manual.
C8. Building design fees (% of build costs)
2.68 Building design fees are generally in the range of 8 to 10%, and so
having regard to this the mid-point of 9% was assumed for all
appraisals.
C9. Building contingencies (% of build costs)
2.69 This reflects the percentage of build costs that are set aside for
contingencies. An average level of 4% was assumed across all
residential appraisals.
D. Finance costs
D1. Interest rates
2.70 According to the HCA EAT user manual, the interest rate charged by
lenders is typically 3 5% above the 3 month London Inter Bank Offer
Rate (LIBOR) depending on the type of scheme, the perceived risk,
and the experience of the developer. Reflecting current uncertain
market conditions and recent appraisals submitted on schemes within
Salford, an interest rate of 7.51% was assumed (i.e. 7% above the
LIBOR rate of 0.51% as at 22 July 2013)11.
E. Developer Overhead and Return for Risk
E1. Developer profit
2.71 This represents the developer profit before taxation as a percentage of
the market housing value. According to the HCA EAT user manual this
typically lies within a range of between 17.5% and 20%. Having regard
to current market conditions where levels of risk are high, a figure at
the top of this range was considered appropriate. A level of 20% was
therefore assumed across all residential appraisals.
Overall surplus / deficit
2.72 The potential 'surplus' / deficit available from a development was
calculated by deducting total development costs, land acquisition costs,
11
18
finance costs and developer profit from the total gross development
sales value. The next section of this assessment sets out the results of
the viability appraisals.
19
3.
Assessment results
3.1
3.2
3.3
20
Site
size
(ha)
Scheme type
Sales value
area
2.0
High value
2.0
2.0
2.0
High density
apartments
Low density
houses
Mid density
apartments
Mixed
2.0
2.0
2.0
Low density
houses
Mid density
apartments
Mixed
2.0
2.0
10
2.0
11
2.0
12
2.0
13
2.0
Low density
houses
Mid density
apartments
Mixed
Low density
houses
Mid density
apartments
Mixed
Total capital
value of open
market housing
Total capital
value of scheme
(A)
108,900,000
113,284,615
65,016,415
4,134,135
21,780,000
Surplus /
deficit at
completion =
A (B+C+D)
22,354,065
Mid/High
20,345,000
20,345,000
8,192,601
3,167,436
4,069,000
4,915,963
Mid/High
38,896,000
39,472,923
21,344,536
3,332,626
7,779,200
7,016,561
Mid/High
28,015,000
28,063,462
11,800,065
3,197,295
5,603,000
7,463,101
Mid value
area
Mid value
area
Mid value
area
Mid/low value
17,215,000
17,215,000
7,765,807
2,594,382
3,443,000
3,411,811
32,912,000
33,488,923
20,227,316
2,783,985
6,582,400
3,895,223
23,925,000
23,973,462
11,192,245
2,624,301
4,785,000
5,371,916
14,085,000
14,085,000
7,640,607
1,992,819
2,817,000
1,634,574
Mid/low value
26,928,000
27,504,923
19,987,956
2,300,025
5,385,600
-168,657
Mid/low value
19,575,000
19,623,462
11,018,245
2,030,135
3,915,000
2,660,082
Low
10,955,000
10,955,000
7,515,407
1,448,785
2,191,000
-200,192
Low
20,944,000
21,520,923
19,748,596
2,215,198
4,188,800
-4,631,671
Low
15,225,000
15,273,462
10,844,245
2,088,599
3,045,000
-704,383
21
Total direct
costs (B)
Finance and
acquisition
costs (C)
Developer
profit (D)
3.4
As noted in chapter 2, the appraisals were run with land values and developer
profit as an input, and so therefore the output from the model is the residual
surplus / deficit (after land costs and developer profit have been deducted)
which would be available to be directed towards planning obligations.
The planning obligations SPD sets out the financial contributions that will
normally be sought from schemes comprising ten or more dwellings. These
are as follows:
The educations contributions SPD sets out the financial contributions that will
normally be sought from development comprising ten or more houses.
Contributions are not sought from apartments. The scale of contribution is
calculated by multiplying the pupil yield factor (calculated with regard to the
number of bedrooms within a house) by the cost per primary pupil place. This
cost data will be updated annually by the city council on the basis of the most
up-to-date evidence. The cost data utilised below reflects the city councils
published 2013/14 financial year costs per primary pupil place12:
3.8
12
Salford City Council (August 2013) Education contributions SPD: background document
on cost per primary pupil place and school capacity
22
and type of affordable housing that is being delivered. Where the current
requirement for 20% affordable housing would result in a development being
unviable then this or other planning obligations will be reduced accordingly to
ensure that an acceptable development can proceed.
3.9
23
3
4
5
6
7
8
9
10
11
12
13
houses
Mid density
apartments
Mixed
Low density
houses
Mid density
apartments
Mixed
Low density
houses
Mid density
apartments
Mixed
Low density
houses
Mid density
apartments
Mixed
Sales value
area
Surplus /
(deficit) at
completion
Total
planning
obligations
Surplus /
deficit after
planning
obligations
Mid/High
7,016,561
918,699
6,097,862
Mid/High
Mid value area
7,463,101
3,411,811
689,669
503,361
6,773,432
2,908,450
3,895,223
918,699
2,976,524
5,371,916
1,634,574
689,669
503,361
4,682,247
1,131,213
Mid/low value
-168,657
918,699
-1,087,356
Mid/low value
Low
2,660,082
-200,192
689,669
503,361
1,970,413
-703,553
Low
-4,631,671
918,699
-5,550,370
Low
-704,383
689,669
-1,394,052
3.14 Given the above, and that there are examples of schemes (both in relation to
sales value area and scheme type) being built / recently completed which are
theoretically unviable as shown in table 18 above, it is considered that the
requirements of the planning obligations and education contributions SPD
should be sought in all developments of 10 or more dwellings. Should it be
viable to provide these requirements affordable housing should also be
sought. Notwithstanding this, it is recognised that in practice there will also be
sites that although theoretically viable as identified above, would in practice
not be so.
24
3.15 Given the above, where developers consider that the cumulative effect of
policy requirements and planning obligations would compromise development
viability in relation to a particular scheme, the city council should enter into
negotiations with developers to agree a reduced contribution where
appropriate. This would require appropriate evidence to be submitted to the
city council by a developer.
25