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What is this week's blog about?
In this week’s blog, we take a look at the new RICS Guidance Note Assessing Viability in Planning under the NPPF 2019 for England.
This is essential reading for RICS APC Planning & Development candidates, as well as any candidates pursuing Planning as a technical competency.
The full Guidance Note can be downloaded on the RICS website.
When does the Guidance Note take effect?
1 July 2021.
Why was the Guidance Note published?
In 2019, the RICS published the Professional Statement, Financial Viability in Planning: Conduct and Reporting. The new Guidance Note builds upon this Professional Statement and provides guidance on Financial Viability Assessments (FVAs) in plan-making and decision-taking contexts.
It is based upon the amended National Planning Policy Framework (NPPF) 2019, updated national Planning Practice Guidance (PPG) and the decision in Parkhurst Road Ltd v Secretary of State for Communities and Government & Anor (2018).
It replaces the former 2012 RICS Guidance Note, Financial Viability in Planning.
What is a FVA?
A FVA is defined by RICS as, ‘a report assessing the financial viability of a development or development typology. Any viability assessment should follow the government’s recommended approach to assessing viability, as set out in PPG Paragraph 010’.
This, and other useful definitions, are found in the Glossary on page 5 of the Guidance Note.
How does the new Guidance Note relate to the Red Book?
The RICS confirm that any valuation-based requirements in the PPG override the requirements of the RICS Valuation – Global Standards (Red Book), as an ‘authoritative requirement’.
However, where these are not apparent, surveyors need to ensure that any valuation elements of FVAs adhere to the provisions of the Red Book.
What are FVAs used for?
FVAs have a variety of uses, including (but not limited to):
Formulating planning policy
Assessing planning obligations, including affordable housing
Estimating affordable housing tenure viability and composition
Reviewing land use
Dealing with heritage assets and conservation issues
They may be used at the plan-making stage by LPAs to inform policy making and at the development management stage to inform decision taking by LPAs.
What weight is allocated to FVAs by plan-makers?
‘The weight to be given to a viability assessment is a matter for the decision maker, having regard to all the circumstances in the case, including whether the plan and the viability evidence underpinning it is up-to-date, and any change in site circumstances since the plan was brought into force. All viability assessments, including any undertaken at the plan- making stage, should reflect the recommended approach in national planning guidance, including standardised inputs, and should be made publicly available’ (RICS).
How is a FVA structured?
An FVA assesses whether a site is financially viable, considering the value generated by the development against the cost of development. This includes consideration of Gross Development Value, input costs, land value, landowner’s premium and developer’s return.
Surveyors should refer to the RICS Guidance Note Valuation of Development Property for the residual valuation framework used in FVAs.
This is demonstrated in the below diagram (RICS, 2021):
The FVA should demonstrate whether a development is capable of providing levels of developer contributions compliant with emerging and up-to-date planning policy. This will include a minimum reasonable landowner’s return (EUV plus a premium) and a suitable developer’s return (PPG Paragraph 018).
FVAs must include sensitivity analysis to demonstrate the impact of changes in inputs on the output.
What is the output of a FVA?
FVAs typically have an output of Benchmark Land Value (BLV). This is defined as Existing Use Value (EUV) plus a landowner’s premium (EUV+).
EUV is defined by PPG Paragraph 015 as ‘the value of the land in its existing use’.
The landowner’s premium is defined as providing a reasonable incentive to bring the land forward for development, together with a policy-compliant contribution.
It should be noted that BLV is not necessarily the same as Market Value (MV), as per VPS 4 of the Red Book. This is because of differences in the assumptions and method employed in the FVA, i.e. BLV is not the price paid in the marketplace. Instead, it relates to the minimum level of return at which a reasonable landowner would be willing to sell.
Alternatively, it may be based on the Alternative Use Value (AUV) excluding the landowner’s premium, where appropriate. This relates to the value of the ‘land for uses other than its existing use’. The relevant plan will set out the circumstances under which AUV should be adopted.
Surveyors should cross-check their assessment of BLV using a policy-compliant residual land value (as per the RICS Guidance Note Valuation of Development Property) and by using the comparable method based on similar land transactions. Both of these cross-checks should assume policy compliance.
An FVA should report on the EUV, premium, total BLV, AUV (if appropriate) and supporting evidence and considerations.
How is BLV determined for planning purposes?
Establish EUV
If appropriate, establish AUV
Establish the landowner’s premium above EUV based on the evidence in PPG Paragraph 016
Cross-check the EUV+ (calculated above) by establishing the residual value of the site
Cross-check the EUV+ (calculated above) again using comparable land transactions
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N.b. Nothing in this article constitutes legal, professional or financial advice.
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