Viability of developments

Housebuilding iStock 000008203889XSmall 146x219When is a development to be treated as viable? John Pugh-Smith reports on a planning inspector's conclusions.

The issue as to whether Section 106BA of the Town and Country Planning Act 1990 (the power to vary affordable housing provision) can apply to completed housing developments is one that has, till recently, been the subject of speculation.

In one of three appeal decisions under Section 106BC involving residential schemes within Southend-on-Sea, Essex (APP/D1590/Q/14/2228061) the Inspector, Mr P.W. Clark, has now provided some useful pointers as to how the issue of viability should be approached.

The scheme comprised six flats spread across two blocks, which had been constructed and occupied. Although triggering the planning obligation requirement to transfer two flats these had then been privately rented upon the basis that the affordable housing requirement did not make the development economically viable.

The evidence from the parties’ surveyors at the Section 106BC appeal hearing was positive albeit modest, 0.25% in the case of the appellant and 11.4% in the case of the Council, though both falling well short of a reasonable risk reward return of between 20-25% profit on cost.

The Inspector noted that there is no definition of viability within the Act; that the DCLG publication, Section 106 Affordable Housing requirements Review and Appeal (April 2013), advises that the test for viability is that the current cost of building out the entire site is at a level that would enable the developer to sell all the market units on the site at a rate of build out evidenced by the developer and make a competitive return to a willing developer and a willing landowner; and that both the National Planning Policy Framework and the Planning Practice Guidance simply make reference to competitive returns to a willing landowner and willing developer to enable the development to be deliverable.

He noted, too, the RICS Professional Guidance Note Financial Viability in Planning (94/2012) and its advice that a scheme should be considered viable as long as the cost implications of planning obligations are not set at a level at which the developer’s return falls below that which is acceptable in the market for the risk in undertaking the development scheme.

However, he concluded that although there was undoubtedly a risk before the development started, which would have justified building in a reasonable expectation of 20% profit on GDV, there was now no longer any noticeable risk. Most matters were now certain because the development has been completed, the market units sold and the affordable units rented, albeit not to a social landlord.

Moreover, there was no longer any need to enable the development to be “deliverable” because it had been delivered in all respects except the transfer of two flats to a social landlord.

As there was no information to indicate what risk, if any, was now involved in bringing this development to a close, so none requiring a greater return than had been achieved, the Inspector found that the scheme was viable as it had not actually made a loss.

He therefore concluded that as the affordable housing requirement did not mean that the development was not economically viable so the planning obligation needed no modification. Accordingly, the appeal was dismissed.

Whilst this appeal decision needs to be read in the context of the particular requirements of Section 106BA it is now apparent that this provision cannot be used simply to claw back a reduced profit or losses incurred once the commercial decision has been made to develop the land.

It is also a striking reminder that, for planning purposes, viability is by no means a fixed concept, and, that risk will continue to play a significant part in how it should be judged.

John Pugh-Smith is a barrister at 39 Essex Chambers and acted on behalf of the local planning authority, Southend Borough Council. John can be contacted This email address is being protected from spambots. You need JavaScript enabled to view it..