Guidance

Viability

Sets out key principles in understanding viability in plan making and decision taking.

Viability – a general overview

What does the National Planning Policy Framework expect on viability in planning?

The National Planning Policy Framework says that plans should be deliverable and that the sites and scale of development identified in the plan should not be subject to such a scale of obligations and policy burdens that their ability to be developed viably is threatened.

Understanding Local Plan viability is critical to the overall assessment of deliverability. Local Plans should present visions for an area in the context of an understanding of local economic conditions and market realities. This should not undermine ambition for high quality design and wider social and environmental benefit but such ambition should be tested against the realistic likelihood of delivery.

The National Planning Policy Framework policy on viability applies also to decision-taking. Decision-taking on individual schemes does not normally require an assessment of viability. However viability can be important where planning obligations or other costs are being introduced. In these cases decisions must be underpinned by an understanding of viability, ensuring realistic decisions are made to support development and promote economic growth. Where the viability of a development is in question, local planning authorities should look to be flexible in applying policy requirements wherever possible.

See related policy:

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Where can more information about viability assessment be found?

There is no standard answer to questions of viability, nor is there a single approach for assessing viability. The National Planning Policy Framework, informed by this guidance, sets out the policy principles relating to viability assessment. A range of sector led guidance on viability methodologies in plan making and decision taking is widely available.

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Does this guidance apply to viability assessment for the purposes of setting a Community Infrastructure Levy charge?

The Community Infrastructure Levy has separate guidance on viability and charge setting. However, the principles for understanding viability set out in this document will also be relevant for Community Infrastructure Levy evidence collection. Above all, consistency is required.

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What are the underlying principles for understanding viability in planning?

  • Evidence based judgement: assessing viability requires judgements which are informed by the relevant available facts. It requires a realistic understanding of the costs and the value of development in the local area and an understanding of the operation of the market.
  • Understanding past performance, such as in relation to build rates and the scale of historic planning obligations can be a useful start. Direct engagement with the development sector may be helpful in accessing evidence.
  • Collaboration: a collaborative approach involving the local planning authority, business community, developers, landowners and other interested parties will improve understanding of deliverability and viability. Transparency of evidence is encouraged wherever possible. Where communities are preparing a neighbourhood plan (or Neighbourhood Development Order), local planning authorities are encouraged to share evidence to ensure that local viability assumptions are clearly understood.
  • A consistent approach: local planning authorities are encouraged to ensure that their evidence base for housing, economic and retail policy is fully supported by a comprehensive and consistent understanding of viability across their areas. The National Planning Policy Framework requires local planning authorities to consider district-wide development costs when Local Plans are formulated, and where possible to plan for infrastructure and prepare development policies in parallel. A masterplan approach can be helpful in creating sustainable locations, identifying cumulative infrastructure requirements of development across the area and assessing the impact on scheme viability.

Authorities should seek to align the preparation of their Community Infrastructure Levy, Charging Schedules and their Local Plans as far as practical.

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Viability and plan making

How should viability be assessed in plan-making?

Local Plans and neighbourhood plans should be based on a clear and deliverable vision of the area. Viability assessment should be considered as a tool that can assist with the development of plans and plan policies. It should not compromise the quality of development but should ensure that the Local Plan vision and policies are realistic and provide high level assurance that plan policies are viable.

Development of plan policies should be iterative – with draft policies tested against evidence of the likely ability of the market to deliver the plan’s policies, and revised as part of a dynamic process.

Evidence should be proportionate to ensure plans are underpinned by a broad understanding of viability. Greater detail may be necessary in areas of known marginal viability or where the evidence suggests that viability might be an issue – for example in relation to policies for strategic sites which require high infrastructure investment.

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Should every site be tested?

Assessing the viability of plans does not require individual testing of every site or assurance that individual sites are viable; site typologies may be used to determine viability at policy level. Assessment of samples of sites may be helpful to support evidence and more detailed assessment may be necessary for particular areas or key sites on which the delivery of the plan relies.

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How should costs be considered in plan-making?

Plan makers should consider the range of costs on development. This can include costs imposed through national and local standards, local policies and the Community Infrastructure Levy, as well as a realistic understanding of the likely cost of section 106 planning obligations and section 278 agreements for highways works.

Their cumulative cost should not cause development types or strategic sites to be unviable. Emerging policy requirements may need to be adjusted to ensure that the plan is able to deliver sustainable development.

See related policy:

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How should changes in values and costs be treated in plan-making?

Plan makers should not plan to the margin of viability but should allow for a buffer to respond to changing markets and to avoid the need for frequent plan updating. Current costs and values should be considered when assessing the viability of plan policy. Policies should be deliverable and should not be based on an expectation of future rises in values at least for the first 5 years of the plan period. This will help to ensure realism and avoid complicating the assessment with uncertain judgements about the future. Where any relevant future change to regulation or policy (either national or local) is known, any likely impact on current costs should be considered.

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How should viability be considered for brownfield sites in plan-making?

The National Planning Policy Framework sets out a core planning principle that planning policies should encourage the effective use of land by re-using land that has been previously developed (brownfield land), provided that it is not of high environmental value.

Local Plan policies should reflect the desirability of re-using brownfield land, and the fact that brownfield land is often more expensive to develop. Where the cost of land is a major barrier, landowners should be engaged in considering options to secure the successful development of sites. Particular consideration should also be given to Local Plan policies on planning obligations, design, density and infrastructure investment, as well as in setting the Community Infrastructure Levy, to promote the viability of brownfield sites across the local area. Provided sites are likely to deliver a competitive return for willing landowners and willing developers authorities should seek to select sites that meet the range of their policy objectives, having regard to any risks to the delivery of their plan. Authorities do not have to allocate only those sites that provide the maximum return for landowners and developers.

Local planning authorities should seek to work with interested parties to promote the redevelopment of brownfield sites, for example Local Enterprise Partnerships.

To incentivise the bringing back into use of brownfield sites, local planning authorities should also look at the different funding mechanisms available to them to cover potential costs of bringing such sites back into use, when considering which sites to allocate. For brownfield sites, assumptions about land values should clearly reflect the levels of mitigation and investment required to bring sites back into use. The impact of land remediation relief could also be considered when looking at the viability of brownfield sites.

See related policy:

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How should different development types be reflected in viability assessments for plan-making?

Viability assessments should be proportionate, but reflect the range of different development, both residential and commercial, likely to come forward in an area and needed to deliver the vision of the plan. Different types of residential development, such as those wanting to build their own homes and private rented sector housing, are funded and delivered in different ways. This should be reflected in viability assessments.

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How should the viability of planning obligations be considered in plan-making?

The National Planning Policy Framework is clear that local planning authorities, when requiring obligations, should be sufficiently flexible to prevent planned development being stalled. Planning obligations policies should reflect local viability.

See related policy:

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What are the key factors to be taken into account in assessing viability in plan-making?

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Gross Development Value

For the purposes of plan-making, Gross Development Value is the assessment of the potential value generated by development in the area. On housing schemes, this may be total sales and/or capitalised rental income from developments. Grant and other external sources of funding should be considered. On retail and commercial development, broad assessment of value in line with industry practice may be necessary.

Values should be based on comparable, market information. Average figures may need to be used, based on the types of development that the plan is seeking to bring forward. Wherever possible, specific evidence from existing developments should be used after adjustment to take into account types of land use, form of property, scale, location, rents and yields. For housing, historic information about delivery rates can be informative.

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Costs

For an area wide viability assessment, a broad assessment of costs is required. This should be based on robust evidence which is reflective of local market conditions. All development costs should be taken into account including:

  • build costs based on appropriate data, for example that of the Building Cost Information Service;
  • known abnormal costs, including those associated with treatment for contaminated sites or listed buildings, or historic costs associated with brownfield, phased or complex sites;
  • infrastructure costs, which might include roads, sustainable drainage systems, and other green infrastructure, connection to utilities and decentralised energy, and provision of social and cultural infrastructure;
  • the potential cumulative costs of emerging policy requirements and standards, emerging planning obligations policy and Community Infrastructure Levy charges;
  • general finance costs including those incurred through loans; and
  • professional, project management, sales and legal costs.

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Land value

Central to the consideration of viability is the assessment of land or site value. The most appropriate way to assess land or site value will vary but there are common principles which should be reflected.

In all cases, estimated land or site value should:

  • reflect emerging policy requirements and planning obligations and, where applicable, any Community Infrastructure Levy charge;
  • provide a competitive return to willing developers and land owners (including equity resulting from those building their own homes); and
  • be informed by comparable, market-based evidence wherever possible. Where transacted bids are significantly above the market norm, they should not be used as part of this exercise.

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Competitive return to developers and land owners

The National Planning Policy Framework states that viability should consider “competitive returns to a willing landowner and willing developer to enable the development to be deliverable.” This return will vary significantly between projects to reflect the size and risk profile of the development and the risks to the project. A rigid approach to assumed profit levels should be avoided and comparable schemes or data sources reflected wherever possible.

A competitive return for the land owner is the price at which a reasonable land owner would be willing to sell their land for the development. The price will need to provide an incentive for the land owner to sell in comparison with the other options available. Those options may include the current use value of the land or its value for a realistic alternative use that complies with planning policy.

See related policy:

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Viability and decision taking

How should viability be assessed in decision-taking?

Decision-taking on individual applications does not normally require consideration of viability. However, where the deliverability of the development may be compromised by the scale of planning obligations and other costs, a viability assessment may be necessary. This should be informed by the particular circumstances of the site and proposed development in question. Assessing the viability of a particular site requires more detailed analysis than at plan level.

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.

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How should changes in values be treated in decision-taking?

Viability assessment in decision-taking should be based on current costs and values. Planning applications should be considered in today’s circumstances.

However, where a scheme requires phased delivery over the medium and longer term, changes in the value of development and changes in costs of delivery may be considered. Forecasts, based on relevant market data, should be agreed between the applicant and local planning authority wherever possible.

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How should different development types be treated in decision-taking?

The viability of individual development types, both commercial and residential, should be considered. Relevant factors will vary from one land use type to another.

For residential schemes, viability will vary with housing type, including housing for sale or rent.

Identifying the viability issues for certain types of housing is discussed below in more detail.

The private rented sector

Some privately rented homes can come from purpose built schemes held in single ownership which are intended for long term rental. The economics of such schemes differ from build to sale and should be determined on a case by case basis. To help ensure these schemes remain viable while improving the diversity of housing to meet local needs, local planning authorities should consider the appropriate level of planning obligations, including for affordable housing, and when these payments are required. So these homes remain available to rent only, local planning authorities may choose to explore using planning obligations to secure these schemes for a minimum period of time. Local planning authorities should enforce these planning obligations in the usual way.

People wishing to build their own homes

Any viability assessment should take account of average plot values and build costs for such development. The build route proposed (eg whether it is contractor-led or a DIY project) and any non-development costs related to the project such as project management and professional fees should be considered.

Older people

For older people’s housing, the specific scheme format and projected sales rates may be a factor in assessing viability.

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Revision date: 26 03 2015 See previous version

How should viability be considered for brownfield sites in decision-taking?

The National Planning Policy Framework sets out a core planning principle that in decision-taking local planning authorities should encourage the effective use of land by re-using land that has been previously developed (brownfield land), provided that it is not of high environmental value.

Local planning authorities should seek to work with interested parties to promote the redevelopment of brownfield sites, for example Local Enterprise Partnerships.

To incentivise the bringing back into use of brownfield sites, local planning authorities should:

  • look at the different funding mechanisms available to them to cover potential costs of bringing such sites back into use
  • take a flexible approach in seeking levels of planning obligations and other contributions to ensure that the combined total impact does not make a site unviable.

See related policy:

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How should the viability of planning obligations be considered in decision-taking?

In making decisions, the local planning authority will need to understand the impact of planning obligations on the proposal. Where an applicant is able to demonstrate to the satisfaction of the local planning authority that the planning obligation would cause the development to be unviable, the local planning authority should be flexible in seeking planning obligations.

This is particularly relevant for affordable housing contributions which are often the largest single item sought on housing developments. These contributions should not be sought without regard to individual scheme viability. The financial viability of the individual scheme should be carefully considered in line with the principles in this guidance.

Assessing viability should lead to an understanding of the scale of planning obligations which are appropriate. However, the National Planning Policy Framework is clear that where safeguards are necessary to make a particular development acceptable in planning terms, and these safeguards cannot be secured, planning permission should not be granted for unacceptable development.

See related policy:

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What are the key factors to be taken into account when assessment of viability is required for decision-taking on planning applications and appeals?

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Gross Development Value

On an individual development, detailed assessment of Gross Development Value is required. On housing schemes, this will comprise the assessment of the total sales and/or capitalised rental income from the development. Grant and other external sources of funding should be considered. On retail and commercial development, assessment of value in line with industry practice will be necessary.

Wherever possible, specific evidence from comparable developments should be used after adjustment to take into account types of land use, form of property, scale, location, rents and yields. For housing, historic information about delivery rates can be informative.

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Revision date: 06 03 2014

Costs

Assessment of costs should be based on robust evidence which is reflective of market conditions. All development costs should be taken into account including:

  • build costs based on appropriate data, for example that of the Building Cost Information Service;
  • abnormal costs, including those associated with treatment for contaminated sites or listed buildings, or historic costs associated with brownfield, phased or complex sites;
  • infrastructure costs, which might include roads, sustainable drainage systems, and other green infrastructure, connection to utilities and decentralised energy and provision of social and cultural infrastructure;
  • cumulative policy costs and planning obligations. The full cost of planning standards, policies and obligations will need to be taken into account, including the cost of the Community Infrastructure Levy.
  • finance costs including those incurred through loans;
  • professional, project management and sales and legal costs.

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Revision date: 06 03 2014

Land value

Central to the consideration of viability is the assessment of land or site value. Land or site value will be an important input into the assessment. The most appropriate way to assess land or site value will vary from case to case but there are common principles which should be reflected.

In all cases, land or site value should:

  • reflect policy requirements and planning obligations and, where applicable, any Community Infrastructure Levy charge;
  • provide a competitive return to willing developers and land owners (including equity resulting from those wanting to build their own homes); and
  • be informed by comparable, market-based evidence wherever possible. Where transacted bids are significantly above the market norm, they should not be used as part of this exercise.

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Revision date: 06 03 2014

Competitive return to developers and land owners

The National Planning Policy Framework states that viability should consider “competitive returns to a willing landowner and willing developer to enable the development to be deliverable.” This return will vary significantly between projects to reflect the size and risk profile of the development and the risks to the project. A rigid approach to assumed profit levels should be avoided and comparable schemes or data sources reflected wherever possible.

A competitive return for the land owner is the price at which a reasonable land owner would be willing to sell their land for the development. The price will need to provide an incentive for the land owner to sell in comparison with the other options available. Those options may include the current use value of the land or its value for a realistic alternative use that complies with planning policy.

See related policy:

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Revision date: 06 03 2014

Published 6 March 2014