Testing Viability

Jayne Lomas16th October 2012

Today’s presentation….

Context - Planning and viability in 2012

HCA – Our business

Area wide testing

Site specific testing

HCA support and advice.

NPPF launch – Plans should be deliverable

X

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X Harman - Advice on viability testing of Local Plans.

Further planning reform

The Balancing Act

Local expectation Economic reality Political change Local plan viability Site specific Larger phased sites

DELIVERY

HCA : Our business

Housing Delivery

Increasing housing supply

Places that work

Improving quality and standards

Effective use of public sector land

Meeting housing needs

Delivering our programmes

HCA: As an investor

Affordable Housing Programme 2011-15

£4.5bn (£2.3bn existing commitments)

Meeting locally identified needs

FirstBuy support for c.10,000 FTBs access affordable home ownership

“Helping deliver the Government’s ambition to build up to 170,000 new high quality affordable homes by 2015”

HCA : As a land owner/agent HCA Land Existing P&R commitments

Accelerated disposal of land

Other government land Technical support to government departments

Economic Assets Programme Over 300 sites transferred – value of £300m

Nationally important sites – Enterprise Zones

Local stewardship arrangements

HCA : Why viability test?

To make sure we can deliver our land disposal plan To ensure we get the best value for our land To see that our investment goes where it is needed most To make sure that our investment works as hard as it

can – maximise recovery To select delivery partners (DPP)

Think like a developer ….. What is the total amount I could be paid for this development when completed? Gross development

value.

What will it cost me to construct the development including site set up? Overall build cost.

Any additional construction costs? Infrastructure/site abnormals?

What additional obligations will I have to meet? S106/CIL/Affordable housing

How will I pay for this development work? Finance costs and cashflow impact

What costs will I have to pay to sell the units? Marketing and legal costs

How can I satisfy my shareholders? Developer’s return or overheads and profit.

What can I afford to pay for the land? Residual land value

The secret of viability testing

Assumptions, assumptions, assumptions Comparators Benchmarks

Do ( as much as you can) yourself !

The overall price at which the developer calculates he can sell on the land and new buildings.

Ultimately the ‘fixed cake’ from which everything has to be paid.

For sales values look at local market evidence. Hometrack.

Sales values used should be forecast to the proposed sales period – could be several years

Look at sales rates and the impact this has on cashflow.

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Income assumptions

Expenditure assumptions 1

The total cost of constructing the units

Building Cost Information Service (BCIS) from RICS– Definition

• ‘substructure & superstructure but not infrastructure’ • ‘back to the pavement but no further’

– Limitations • sample size, • Build scale

Volume house building – Cost efficiencies of a standard product ?– Supply chain benefits

Quality standards - Code for Sustainable Homes (CSH) & Zero Carbon, Life time homes

Contingency????

Unit Build costs

Expenditure assumptions 2

Prelims and site set up – depends on length of contract External works Infrastructure Abnormals (for the type of scheme….) Design fees Finance fees Marketing costs and incentives Overheads and profit

Expenditure assumptions 3

S106 CIL Affordable Housing – tenure mix, numbers

Regulatory burden?

HCA : Our Viability tools

Designed to be neutral, open and transparent Available free from our website No ongoing license fees Guidance online Specific support available via email helpdesk

www.homesandcommunities.co.uk/ourwork/viability-planning-tools

HCA : Area wide viability model

A transparent, independent tool The AWVM is simple and can be used for consultation

events Can be used for plan making purposes over many years Can be used throughout changes in teams/consultants Land value is calculated as one of the outputs and is not

an input derived by the land owner or others. It will ‘goalseek’ to find the viable level of Affordable

Housing given the assumptions made

HCA : Development appraisal tool

Site specific viability tool (DAT) Residual value model Based on assumptions Advice on sourcing robust input

data Allows benchmarking between

bids and sites. Derivations for deferred receipt

– Build Now Pay later

HCA : ATLAS

Specialist support on larger sites (ATLAS) Usually at the request of the LPA Housing led development sites +500 units Mixed use complex schemes Any stage of delivery Linked to a site or delivery proposal Non – project support