Financial Viability Takes Centre Stage

The financial viability of property development is playing an increasingly important role in the planning and plan-making process.

Whilst the financials have always been a key factor in the success of any development, recent changes to national planning policy and related practice guidance have shifted the focus and priority. According to national planning and development consultancy, Lichfields, these reforms necessitate a change in approach for those seeking to promote the Local Plan process.

Simon Coop, Planning Director at Lichfields, said: “Increasingly there is a ‘frontloading’ of viability assessments to the plan-making stage. The impact and shift of emphasis cannot be overstated. Financial viability assessments are now very much in the planning realm.”

In a new piece of research undertaken by Lichfields, entitled ‘Fine Margins – Viability assessments in planning and plan-making’ the practice offers a comprehensive overview of the way in which viability assessments are being conducted and of the purpose of area-wide viability studies to inform local plan preparation.

Mr Coop added: “Recent evidence we have gathered and analysed, in the residential housing market, suggests that the soundness of local plans is increasingly being fought on a viability battleground.

“Viability is a critical but often misunderstood concept, and one that is central to the delivery of housing sites and the successful implementation of local plan strategies.”

Drawing upon several years’ worth of evidence from local plan and Community Infrastructure Levy (CIL) viability studies from across England and Wales, this research into the residential housing sector helps to bring greater clarity to an area of practice in which there are many misunderstandings.

Will Christiansen, who carried out much of the research, explained that the findings should ideally reduce confusion and create more meaningful debate on this issue between developers, planners and local authorities.

Mr Christiansen commented: “Changes introduced in 2019 are really starting to impact the sector. There is widespread confusion in planning practice and guidance and this Fine Margins Insight piece aims to demystify some of this and become a key reference document across the industry.

“Having a housing scheme that stacks up from a financial perspective provides a sound basis for a development scheme to come forward. If the value generated by development (GDV) is equal to or greater than the total costs, then the scheme is viable and can go ahead.”

Traditionally, it was usually commercial surveyors who undertook financial viability assessments, and this was often something done later in the planning and development process. Today, assessment is now centre stage and at the forefront of planning new housing developments.

Planning policy in England and Wales now seeks to ‘frontload’ all considerations of development viability so that is given a much greater emphasis at the strategic plan preparation stage.

“The assumption that flows from this is that developments that accord with the strategic plan will be viable. However, local plans provide a long-term framework for development, and it is essential that they are sufficiently flexible to account for changing circumstances, such as rising costs and potential changes in development values over the next 10-15 years,” noted Mr Christiansen.

Lichfields hopes the research will be useful to those wanting to:

• gain an overview of the concepts, inputs and outputs that underpin viability assessment in a housing development context;
• understand in greater detail the links between viability assessment and planning; and
• scrutinise local plan (or CIL) viability evidence (or underpin independent evidence) with reference to a robust national dataset.

A copy of the Fine Margins Insight report is available from the Lichfields website.

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