Financial Appraisal of Planning Applications - Public forum - Planning Advisory Service (PAS)

Matthew I am surprised you've not had any public responses to your important posting, perhaps most people (like me) did not get an email alert for this - PAS please note! The approach of our housing viability study consultants (Three Dragons) is to leave us with an electronic toolkit to use with planning applications after some training which we are about to have. So I can't yet say how well this works! But there will be plenty of people out there that know... I understand there is a similar toolkit on the HCA website which is freely available. As you say though housing viability is just the start.

Julian, agree would be nice to see more responses on this! If you want email alerts for this forum you can manage them here: http://www.pas.gov.uk/pas/reg/user-account.do?aspect=Forum&mode=u (doesn't look like you are set up for them at the moment) Best, John.

We are private-sector consultants working for both developers and local authorities in demonstrating the ability (or otherwise) of proposed developments to meet required policy contributions. We therefore appraise site-specific schemes rather than area-wide viability studies for policy formulation. In response to Matthews key questions: -- Who -- I would have thought that this is entirely at the discretion of the authority involved. However if you are looking for site-specific economic viability studies, you will need a practitioner who understands the entire development process, and not just the economics surrounding the provision of affordable housing. What -- every economic viability study the we undertake accounts for all of the policy contributions required by the relevant local authority, and therefore the results are equally applicable to housing schemes as they are to industrial development. For instance if a new office scheme requires significant infrastructure investment to allow access, then that is accounted for in the viability assessment, and it can clearly be shown whether or not the proposals are capable of supporting any other policy contributions. This is a big topic and I would be happy to discuss it further, either here or in a separate thread. How Much -- it is impossible to judge how long it will take to complete a viability appraisal as so much depends on all of the information being made available by the developer at an early stage. The last Independent Assessment that we carried out for a local authority was based upon comprehensive and well presented evidence by the developer, but still resulted in our report being in excess of 100 pages. The cost was £4,000. I doubt very much whether any appraisal and assessment report can be completed for less than £3000. In most cases the developer is required to pay for this but I understand that this position needs to be supported by adopted policy. We have been involved in viability studies for a number of years, and have recently developed a new range of services to help local authorities deal with this particular issue. The document attached gives more detail. I would be happy to provide more specific information if required. adam@intali.com

Does anyone have any evidence of developers being required to pay for site specific viability assessment and any examples of adopted policy which has been sucessfully used. Thanks

Hi David Here at Mole Valley District Council we have been a position whereby we have asked for a viability assessment to show that the policy requirements are not viable and then asked the applicant to also pay for their report to be varified by consultants working for the Council. This is considered as standard practise and is recognised in the Home & Communities Agency's Good Practise Note - Investment and Planning Obligations- Responding to the Downturn (August 2009) (para. 5.9). We have an adopted Core Strategy and Affordable Housing SPD if you want further details - http://molevalley-consult.limehouse.co.uk/portal/draft_affordable_housing_spd/ahspd/affordable_housing_spd_adopted_2010?pointId=987272#document-987272

Thanks Suzanne, that was posted in hope and didnt expect such a quick response. It came from a statement from a Head of planning who seemed to think all local authorities were requiring that verification work is paid for by developers but i was struggling to find any.

At Doncaster we too require the developer to submit a cheque to us along with the viability appraisal. This is then used to pay the retained consultants we appointed to review the appraisal. Until January this year we paid for the work ourselves but found that there were too many of them coming in and transferred the cost to the developer.

Suzanne, Richard, how do you convince applicants/agents to pay for an appraisal of an appraisal? This is something we are looking at bringing in (since seeing it mentioned in Development Control Casebook Forum!) as we too are increasingly being bombarded with viability appraisals we have little expertise in dealing with. Has anyone ever tested your resolve? What would you do if they refused to pay and said: "That's my appraisal, here's my validly made application without the extra cheque - determine it within 8 weeks please." On what basis would you refuse it given that they may well have provided a perfectly valid and accurate appraisal? Also, do you use the same appraoch in assessing applications for agricultural workers' dwellings - i.e. get the applicant to pay for assessment by an agricultural consultant? I would be very interested in hearing about your experiences as these are some of the questions taxing us as we decide whether to adopt the same process.

Richard do you have an SPD which requires this? If not where do yo advertise the fact?

Hi Nick The questions you have asked are all those that we considered prior to implementing this part of the policy and requiring the financial viability assessment to be 'tested'. When we were preparing our Core Strategy and SPD there was limited guidance on the issue and so we based the approach on two main points: 1. The starting point for us is that it is adopted Policy as part of the Core Strategy and the SPD on Affordable Housing Provision. The approach has been considered 'sound' and the SPD was subject to consultation. Any proposal to move away from the adopted policy e.g. a lower financial contribution needs to be justified, as with all other applications. 2. Guidance from the HCA on Investment and Planning Obligations - Responding to the Downturn (August 2009). Para. 32 states 'full disclosure of financial information should be expected alongside arrangements to validate assumptions used, if necessary by an independent expert. It is common practice for developers to fund the cost of independent validation'. To date no applicant has challenged the approach (covering the cost of the validation) and we have had a number of assessments examined by an independent expert. If we were challenged I would expect we would refuse the application for not complying with the policy. In the future though I can see local authority planners having to have a firmer grip on viability and having to look at these assessments in-house. I hope this helps. We dont tend to have too many applications for agricultural worker dwellings so I cant help on this one.

Hi Suzanne, Thanks for this. I take comfort in seeing that you are essentially using the same justifications as we intend to use. It is good that no-one has yet challenged your system and hopefully they never will. I suppose that if an applicant has confidence in his/her appraisal there is no reason not to pay a relatively small cost (in relation to overall development cost) to have it verified - in fact I expect they would factor it into their costs in the appraisal! My worry is that if an applicant didn't pay the cost of assessment and I refused an application without assessing the veracity of the viability appraisal I would not be certain that it was contrary to policy because I would not have tested the evidence presented to me. If an appeal inspector then assessed the viability appraisal as submitted and found it to be sound then I would have thought I could expect to be on the wrong end of a costs award. Have you thought of a way around this or is it simply a matter of relying on an applicant's goodwill do you think?

HI Nick You make a good point re: if the applicant is confident that the scheme is not viable etc... It would be good to have some response from the private sector on this debate. An the appeal side of things - the only point you could perhaps argue is that not providing the independent check is contrary to policy if it were adopted through a DPD or SPD. I thought that inspectors have received advice on issues on viability from PINS - but I cannot track this down. I suppose they also have to go on the evidence in front of them and this could go either way.

From my experience of providing appraisals for the private sector I would make two points:- 1) Most developers, if they genuinly believe their appraisal is valid, would not expose themselves to the financil risk of an appeal for the sake of the fee to have the viability independently assessed. Our fees for such an independent assessment range from £3,500 for small schemes up to £20,000 for large strategic sites but this is small change compared to the cost of an appeal. 2) A negotiated settlement of the viability gives the developer certainty. A planning consent moves the developer towards their annual "target" for new plots increasing their value for accounting purposes. An appeal creates uncertainty and delays cystalising this value. I think developers are starting to allow for the costs of not only the appraisal, but also the Independent Assessment in their budgets. This has not always been the case but as it has become more of an issue, there is normally an amount allowed. It is also worth bearing in mind that if the developer uses an external consultant to carry out the appraisal, then that consultant is likely to be heavily involved in providing the inputs for the Independent Assessment, and in negotiations to allow the economic viability case to be negotiated. This is particularly true where phased schemes, stage payments and "cascade payments form part of the solution. This cost is also met by the developer. I have carried out a couple of assessments for authorities where our fees were paid by the council. In my opinion the resources available for the work were insufficient to allow a really thorough investigation of the appraisals put forward by the developer. I suspect (but cannot prove) that more contributions could have been secured. Sorry - this is much longer than I had intended but I hope it helps. If anyone would like me to visit them and/or their teams to discuss any aspect of this subject I would be happy to oblige. adam@intali.com

Nick, no one has tested our resolve on this. Since we started charging on 1st January we have not had a formal submission. We have had one enquiry and they were informed of the charge, have not questioned it and we expect them to submit the appraisal as a pre-app rather than an application shortly. They will probably not want to submit an application until they know what our view on it will be. Our take has been that the charge (£1500) is still very small against the many tens or hundreds of thousands of savings they would expect to achieve by not needing to deliver the required obligations.

Nick, One option we're looking at (yet to adopt) is requesting that the developer go straight to the District Valuer to have his appraisal checked; the DV being an impartial assessor. The LPA would want to be copied in on all correspondence between the applicant and the DV to ensure transparency and confidence. The DV report would than be submitted by the developer in support of the application. As the developer would need to meet the costs directly, it would take the LPA out of the loop of having to pay for the appraisal and then seek to have its costs met by the developer.

David (and for the benefit of others) - an update nearly 12-months on from my original posting. The requirement for developers to fund an independent economic viability assessment is set out by our Affordable Housing SPD, adopted in January 2010, which can be viewed here - http://localdevelopment.sthelens.gov.uk/site.do?id=741 In November 2010, we appointed independent retained economic viability consultants, following a competitive tendering process. So far we have not had any challenges by developers to pay for such an appraisal. The way in which we sell this to them is that for the rather modest cost of paying for an appraisal (as a very small proportion of the total development costs), they can potentially save themselves a vast amount of money if our AH requirements are actually found to make their development scheme unviable. In the few schemes that we have had appraised so far, we have actually had to relax our requirements. However, with the advice from our consultants, we have managed to secure some commuted sum payments, albeit at a reduced level (which is better than nothing at all). Interestingly, we had not had to appraise as many schemes as we predicted we might have to. The fact that we have independent consultants appointed makes developers take note that we are fully aware of viability issues and the majority are happy to cooperate on this basis, whereas previously we felt we may have had the 'wool pulled over our eyes'.