A new approach to viability
Rose Grogan examines the proposed changes in approach to viability in the revised National Planning Policy Framework (NPPF) and accompanying guidance.
One of the key political issues that the draft NPPF seeks to address is the perception – and often the reality – that developers promise affordable housing at planning permission stage only to negotiate it out once permission has been granted on the grounds of viability. It has not helped that historically, viability assessments are confidential, rarely, if ever, disclosed to the public and that there is no standard approach to viability assessment.
The current NPPF deals with viability by in paragraphs 173-177. In striking the balance between facilitating development and obtaining much needed affordable housing and infrastructure contributions, the NPPF and accompanying guidance has built into it the principle that development should be able to provide competitive returns for the land owner.
The “viability loophole” as it has been described by some commentators is a knotty practical and political problem. The policy was intended to increase supply by of housing by boosting a sluggish market. While some areas may have benefitted overall in terms of housing delivery, it came at the cost of affordable housing provision. Research by Shelter in 2017 estimated that as a result of re-negotiation of affordable housing quotas on the grounds of viability, nine cities had lost out on 2,500 affordable homes in one year. [1] The CPRE has recently reported on the same problem arising in rural areas. On the other side of the argument, there is a need to allow for planning obligations and contributions to be adjusted to take into account changed economic circumstances, otherwise much needed housing schemes will not be built.
The new proposals have their basis in the government’s Planning for the Right Homes in the Right Places consultation. The government’s response to the consultation revealed divided views about whether and how the current approach to viability should be reformed, although there was significant support for greater transparency.
The result is as follows:
At the plan-making stage, there is a clear shift in emphasis in the draft guidance. The government has sought to push viability back into the under the jurisdiction of plan-makers. Reading between the lines, the goal is that issues of viability should be the exception, not the norm. The tone of the guidance has also changed. Gone are the references to “proportionality” and “competitive returns” for landowners. The definition of viability in the existing guidance – a site is viable if the value generated by its development exceeds the costs of developing it and also provides sufficient incentive for the land to come forward and the development to be undertaken – has been taken out. The focus has shifted to minimum returns and the message that developers will not be able to get out of their obligations lightly. The guidance also makes clear that overpaying for land cannot be used to justify a failure to comply with policy.
Further key changes come at the decision-making stage:
- The general theme is that viability assessments should not be necessary.
- Where a scheme complies with relevant policies in the local plan, no viability assessment should be required to accompany the application (see paragraph 58 of the draft NPPF). This effectively means that compliant schemes will be presumed to be viable, in the hope that this will speed up decision-making.
- The government has left it to local planning authorities to identify the circumstances in which viability assessments will be required in their local plans. It will also be up to local planning authorities to decide whether to identify how review mechanisms will be used when circumstances change and what those review mechanisms will look like. However, the examples given in the draft guidance suggest that the expectation is that viability assessments should only be required where the development proposed is out of the ordinary or where there has been a significant change in circumstances.
- Where viability assessments are needed, the government has proposed new guidance which sets out a standardised approach.
- Viability assessments should be made publicly available.
The reforms certainly sound like dramatic changes – and have been hailed as such by the government. However, the government cannot, as yet, force developers to build out schemes that will not be profitable. There is also a significant amount of detail to be worked out at a local level.
These proposed reforms are by no means the end of viability assessments or renegotiation of planning obligations. While standardisation and transparency are to be welcomed, it will be interesting to see whether these reforms, if implemented, lead to any significant changes on the ground.
Rose Grogan is a barrister at 39 Essex Chambers. She can be contacted This email address is being protected from spambots. You need JavaScript enabled to view it..
