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Salford City Council

Housing viability
assessment

August 2013

Contents
Chapter

Page
number

1.

Introduction

2.

Methodology and assumptions

3.

Assessment results

Annexes

1.

BCIS Build Cost data, Greater Manchester (27 July 2013)

2.

Appraisals 1-13

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Salford City Council housing viability assessment (August 2013)

1.

Introduction

1.1

This housing viability assessment (referred to as the assessment


hereafter) looks at the potential implications of the city councils
planning obligations supplementary planning document (SPD) and
education contributions SPD on the financial viability of housing
schemes.

1.2

This is a strategic assessment, and does not seek to test the viability of
specific sites. It assesses the viability of average sites. Inevitably the
economics of individual schemes will vary considerably, with some
being more viable and some less viable.

1.3

In producing this assessment, regard has been had to the advice for
planning practitioners that was produced by the Local Housing Delivery
Group1. The viability assessments have been run using the Homes and
Communities Agency development appraisal tool.

1.4

This report is split into three chapters as follows:


Chapter 2 outlines the methodology used within the assessment
and the assumptions used to inform the viability appraisals
Chapter 3 assess the findings of the assessment and the
implications arising from this

Local Housing Delivery Group (June 2012) Viability testing local plans. Advice for
planning practitioners

Salford City Council housing viability assessment (August 2013)

2.

Methodology and assumptions

2.1

Viability appraisals include a wide range of assumptions about


particular schemes / sites, including the capital value of a development
(primarily the value realised by selling new dwellings), the cost of
developing a site (such as buying the land, build costs), the profit a
developer expects from a particular site, and finance costs.

2.2

Viability assessments can vary significantly with only minor changes in


assumptions, and therefore they can only ever provide a relatively
broad estimate of the potential scope of planning obligations. It is
important that they are seen in this context rather than as precise
forecasts.

2.3

Having regard to this, it was considered most appropriate for the


purposes of this assessment to use generic viability appraisals based
on a range of different development scenarios (in terms of dwelling mix
and different residential sales values in the city). Such appraisals are
not intended to be detailed site appraisals for use in relation to
particular schemes, and as such do not take into account detailed site
specific issues of ground conditions, demolition etc. However, generic
appraisals do make informed judgements and estimates with regards to
different variables, and are considered to be an appropriate basis for
assessing general levels of viability across the city.

Generic development sites


Dwelling mix (type and number of bedrooms)
2.4

Given that it is considered most appropriate to undertake generic


viability assessments, and in order to test a broad range of residential
scheme types, four different scheme typologies were chosen as
follows:
Low density family housing scheme (at 35 dwellings per hectare)
Mid-density apartment scheme (at 125 dwellings per hectare)
High density apartment scheme (at 300 dwellings per hectare)
Mixed scheme of 80% houses (at 35 dwellings per hectare) and
20% apartments (at 125 dwellings per hectare).

2.5

The precise mix on actual sites will of course vary from the above
typologies on a site by site basis. However, collectively the chosen
typologies are considered to cover the broad range of schemes that are
likely to come forward for development in the city, having regard to past
completions, sites with planning permission for housing, and the type
and density of schemes identified in the city councils strategic housing
land availability assessment as being developable for new housing in
the future.

2.6

Each generic development site is 2 hectares (ha) in size. Consideration


was given as to whether other site sizes should be used in the

Salford City Council housing viability assessment (August 2013)

appraisals, but this was not considered necessary given that it is not
likely that site size would have a notable difference on the ability of
different sites to support planning obligations at different levels.
2.7

The precise mix of dwellings, in terms of type (apartments and different


house types) and number of bedrooms, under each scheme typology
was determined having regard to ensuring that a broad range of types
and sizes were provided in each scheme. This was considered
appropriate and is reflective of the fact that when bringing forward
actual development sites, developers tend to include a range of
property types and sizes, in order to cater for a wide range of needs
and demands.

2.8

The table below shows the total number of dwellings in each of the
scheme typologies, and also shows the split by size (number of
bedrooms) and type.

Table 1- Scheme typology dwelling mix


Scheme typology Total dwellings
(2ha site)
Low density
70 dwellings (70
family housing
houses)
scheme (35dph)

Mid-density
apartment
scheme (125dph)
High density
apartment
scheme (300dph)
Mixed scheme of
80% houses (at
35dph) and 20%
apartments (at
125dph).

250 dwellings (250


apartments)
600 dwellings (600
apartments)
106 dwellings (21
apartments, 85
houses)

Mix of dwellings (2ha sites)

8 x 2 bed semis
25 x 3 bed townhouses
25 x 4 bed townhouses
8 x 4 bed detached
4 x 5 bed detached
99 x 1 bed apartments
138 x 2 bed apartments
13 x 3 bed apartments
200 x 1 bed apartments
380 x 2 bed apartments
20 x 3 bed apartments
8 x 1 bed apartments
13 x 2 bed apartments
8 x 2 bed semis
32 x 3 bed townhouses
31 x 4 bed townhouses
10 x 4 bed detached
4 x 5 bed detached

Scheme typology floorspaces


2.9

Having established the mix of dwellings for the different generic site
types, it was necessary to estimate the total floorspace in each of them,
given that the appraisals need to include an allowance for build costs
and sales costs on a cost per square metre basis.

2.10 In order to calculate the floorspace in each scheme typology, the


starting point was to make an assumption about the floorspace of each

Salford City Council housing viability assessment (August 2013)

of the dwellings. For the purposes of the appraisals, the following


dwelling sizes (net internal area in square metres) were assumed.
Table 2 Dwellings size by number of bedrooms and property type
Apartment SemiTownhouse Detached
detached
(3 storey)
(2 storey)
(2 storey)
1 bed 50sqm
n/a
n/a
n/a
2 bed 65sqm
70sqm
n/a
n/a
3 bed 80sqm
85sqm
105sqm
105sqm
4 bed n/a
100sqm
120sqm
125sqm
5 bed n/a
n/a
135sqm
160sqm
2.11 The assumptions in relation to dwelling size as set out in the table
above were developed with regard to:
The Homes and Communities Agency (HCA) housing quality
indicators unit size ranges2
The size of dwellings being built in the city
Existing planning policy in the unitary development plan and
housing planning guidance
An allowance of 12sqm being made for all townhouse dwelling
types and the 3 and 4 bed detached units, to allow for a single
garage. For the 5 bed detached units, an allowance of 24sqm was
made for a double garage
2.12 The floorspaces referred to above are for the net internal floor area,
and are used when determining the estimated sales value of
properties. However, build costs within the appraisals relate to gross
floorspace, and so therefore gross floorspace also needed to be
calculated.
2.13 For schemes involving only the development of houses, the net and
gross floorspaces are the same. However, in schemes that include
apartments an estimate needed to be made for the space occupied by
common areas. The HCA state that an additional allowance of 15% for
common areas is a commonly accepted figure, and on this basis an
allowance of 15% was utilised in this assessment.
2.14 In addition, in the high density apartment scheme it was assumed that
there was on-site basement / podium parking at a ratio of 0.5 spaces
per apartment. This adds extra floorspace to the scheme (and an
associated build cost) and so an assumption was made as to what this
equates to. Having regard to the size of car parking spaces, and
ensuring sufficient vehicular circulation space, an allowance of 25
square metres per space was made.

Housing Corporation (Published May 2007, updated April 2008) 721 Housing
Quality Indicators Form

Salford City Council housing viability assessment (August 2013)

2.15 Adding the extra floorspace for apartments in relation to common


areas, and basement parking in the high density scheme, to the net
internal floorspace of individual dwellings provides the gross floorspace
for apartments. Having regard to this, the table below shows the net
and gross floorspace in each of the 4 scheme typologies. As noted
above, these floorspace figures were used in the viability appraisals.
Table 3 Total floorspace by scheme typology
Scheme typology Total dwellings Mix of dwellings
(2ha site)
(2ha sites)
Low density
70 dwellings
8 x 2 bed semis
family housing
25 x 3 bed
scheme (35dph)
townhouses
25 x 4 bed
townhouses
8 x 4 bed
detached
4 x 5 bed
detached
Mid-density
apartment
scheme (125dph)

250 dwellings

99 x 1 bed
apartments
138 x 2 bed
apartments
13 x 3 bed
apartments

Floorspace

8 x 70sqm
25 x 105sqm
25 x 120sqm
8 x 125sqm
4 x 160sqm

Total gross / net


floorspace =
7,825sqm

99 x 50sqm
138 x 65sqm
13 x 80sqm

Total net
floorspace =
14,960sqm
+15% for
common areas =
2,244sqm

High density
apartment
scheme (300dph)

600 dwellings

200 x 1 bed
apartments
380 x 2 bed
apartments
20 x 3 bed
apartments

Total gross
floorspace =
17,204sqm
200 x 50sqm
380 x 65sqm
20 x 80sqm
Total net
floorspace =
36,300sqm
+15% for
common areas =
5,445 sqm
+ 300 basement
car parking

Salford City Council housing viability assessment (August 2013)

Scheme typology

Total dwellings Mix of dwellings


(2ha site)
(2ha sites)

Floorspace
spaces at 25sqm
each = 7,500sqm

Mixed scheme of
80% houses (at
35dph) and 20%
apartments (at
125dph).

106 dwellings

8 x 1 bed
apartments
13 x 2 bed
apartments

8 x 2 bed semis
32 x 3 bed
townhouses
31 x 4 bed
townhouses
10 x 4 bed
detached
4 x 5 bed
detached

Total gross
floorspace =
49,245sqm
8 x 50sqm
13 x 65sqm

8 x 70sqm
32 x 105sqm
31 x 120sqm
10 x 125sqm
4 x 160sqm

Total net
floorspace =
10,775sqm
+15% for
common areas in
apartments =
187 sqm
Total gross
floorspace
=10,962sqm

General approach to viability appraisals


2.16 The city council utilised Version 2.04 (March 2013) of the HCA
development appraisal tool (DAT) model to run the viability appraisals.
The DAT is a standard valuation model that runs in Microsoft excel and
is freely available to download via the HCA website3. Full details of the
operation of the model are set out in the user manual which is also
available from the HCA website.
2.17 The generic viability assessments undertaken by the city council used
a form of the residual value technique, although land values were
inputted into the appraisals so that the output is actually the residual
surplus / deficit, as opposed to the maximum residual value that a
developer is able to pay a landowner to purchase the land (as
commonly seen in other appraisals). The reason this approach was
used is that it enabled the appraisals to identify any residual surplus,
after land costs and standard developer profit have been deducted,
which would be available to be directed towards planning obligations
3

Homes and Communities Agency (March 2013) Development Appraisal Tool

Salford City Council housing viability assessment (August 2013)

(given that no allowance was made in the appraisals for such


obligations).
2.18 The approach taken by the city council, and the different variables that
make up the appraisals, can be summarised as follows:
Table 4 Approach to calculating scheme surplus / deficit
A
Gross Development value
A1
Residential sales values
A2
Car parking
A3
Ground rent
A4
Ground rent yield
B
Land acquisition costs
B1
Value at which a landowner will sell
B2
Agent fees
B3
Legal fees
B4
Stamp duty
C
Development costs
C1 Build costs
C2 Decontamination
C3 Demolition
C4 Infrastructure
C5 Carbon emissions / code for sustainable homes
C6 Marketing and sales fees
C7 Legal fees
C8 Building design fees
C9 Building contingencies
D
Finance costs
D1 Interest rates
E
Developer overhead and return for risk
E1
Developer profit
Overall surplus / deficit available for planning obligations =
A (B+C+D+E)
Viability appraisal assumptions
2.19 Data on the different variables that form part of the appraisals was
collated having regard to a number of factors, including:
Development appraisals submitted within Salford in support of
planning applications
The HCA economic appraisal tool (EAT) user manual
Discussions with Urban Vision Property Services over certain
assumptions
Publicly available data (such as stamp duty rates, Valuation Office
Agency (VOA) land values)
Local Housing Delivery Group (June 2012) viability testing local
plans: advice for planning practitioners
2.20 The following section sets out the different assumptions the city council
made in the appraisals.
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Salford City Council housing viability assessment (August 2013)

A. Gross development value


A1. Residential sales values
2.21 The DAT requires that residential sales value data per square metre is
inputted. As part of work that fed into the city councils affordable
housing economic viability assessment (AHEVA)4, data was assembled
on residential asking prices from housing developer websites and
Rightmove to approximate sales values per square metre (with dwelling
floorplans being readily available from these sources).
2.22 For the purposes of the AHEVA, the city was initially split into 33 subareas to simplify the data collection process, with those areas defined
on the basis that they each have reasonably common housing market
characteristics although inevitably there are some significant
differences within them. Some of these sub-areas were subsequently
split into smaller areas as a result of the analysis.
2.23 The review that fed into the AHEVA appraised over 300 residential
properties across the city being marketed for sale as at July 2011, and
largely focused on new build residential developments or modern
housing developments (that have been completed within the past 20
years). For areas of the city where there were a limited number of new
build developments or modern housing developments, the asking price
values for older dwellings were utilised.
2.24 This detailed analysis identified a significant range of asking price
values across the city, ranging from 1,000 per sqm to 5,165 per sqm
of net internal floorspace. Using the 33 sub-areas as a basis, clear
patterns were identified with particular spatial areas having broadly
similar sales values.
2.25 Taking account of this, five broad residential sales value areas were
identified in the AHEVA. These were considered to give a good overall
indication of sales values across the city, although inevitably there is
some variance and outliers within each one.
2.26 The table below sets out the different value areas and the range of
sales values within them.
Table 5 Residential sales value areas
Sales value
Sales values per sqm
area
High
Over 3,000
Mid / high

2,600 to 3000

Areas
Regional Centre within the inner
relief route, and Salford Quays
Worsley, South Swinton, and Chat
Moss

Salford City Council (February 2012) Affordable housing economic viability


assessment

Salford City Council housing viability assessment (August 2013)

Sales value
area
Mid

Sales values per sqm

Areas

2,200 to 2,600

Mid / low

1,800 to 2,200

Low

1,400 to 1,800

Broughton Park and Kersal, Chapel


Street / The Crescent, Exchange
Quay, Ellesmere Park and Monton,
Boothstown, Ellenbrook, and South
Walkden
Trinity, Ordsall, Claremont, Eccles
and Peel Green, Irlam and
Cadishead, Swinton, Pendlebury
and Agecroft, and North Walkden
Higher and Lower Broughton,
Charlestown and Lower Kersal,
Pendleton, Weaste, Seedley and
Langworthy and Little Hulton

2.27 The plan below identifies the boundaries of these defined value areas.

Salford City Council housing viability assessment (August 2013)

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Salford City Council housing viability assessment (August 2013)

2.28 For the purposes of this housing viability assessment the sales value
areas have been reviewed in order to assess whether they continue to
provide an appropriate basis for defining value areas across the city.
This was done by looking at the sales values per square metre in new
build developments that are currently being marketed in the city, and
utilising proposed sales values that have been submitted to the city
council recently as part of viability evidence supporting planning
applications (and subsequently verified as being appropriate by Urban
Vision Property Services).
2.29 The conclusion from this exercise was that the sales value areas
identified in the AHEVA remain valid.
2.30 The Local Housing Delivery Group advice on viability testing states at
page 34 that when considering information on sales values and rates,
care should be taken to reflect current market conditions having regard
to net sales revenues achieved rather than asking prices. (Net revenue
is the actual revenue received by the home builder after allowing for
discounts, sales incentives etc).
2.31 The value areas highlighted above were identified having regard to
asking prices. As noted in the Local Housing Delivery Group advice,
account needs to be had to actual sales values. Having regard to this,
and in order to ensure that viability in the appraisals was not over
estimated, the lower asking price value (within the range identified for
each sales value area) has been inputted into the DAT as follows:
Table 6 Sales value per sqm used in appraisals
Sales value
Sales value per
Sales value per
area
sqm
sqm used in
appraisals
High
Over 3,000
3,000
Mid / high
2,600 to 3000
2,600
Mid
2,200 to 2,600
2,200
Mid / low
1,800 to 2,200
1,800
Low
1,400 to 1,800
1,400
A2. Car parking
2.32 The HCA DAT manual is clear that this element of the model relates to
off-plot car parking spaces, such as those in basements, where the
spaces are sold separately from the dwelling (and are not therefore
included in the sales price). This provides additional capital value in a
scheme.
2.33 As noted above, it was assumed that the provision of off-plot residential
car parking spaces only applies to the high density apartment scheme
(300dph) typologies, in the high value area (i.e. some parts of the
regional centre). The provision of car parking spaces was assumed at
50% of the number of apartments in each scheme.

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Salford City Council housing viability assessment (August 2013)

2.34 A value of 10,000 per parking space was assumed as the average
capital value for off-plot car parking spaces, in the high density
apartment scheme typology within the high value sales area. This value
was on the basis of recent apartment completions within the regional
centre, where car parking spaces have been sold separately from the
apartment unit.
A3. Average ground rent per unit per annum ()
2.35 This was assumed at 150 per dwelling as an average for all dwelling
types and sizes, on the basis of this being a typical value in recent
appraisals submitted to the city council in support of planning
applications.
A4. Ground rent yield (%)
2.36 This was assumed to be 6.5% for all residential appraisals, recognising
that ground rent income is a secure investment.
2.37

Although a ground rent and yield has been assumed for all dwellings,
the current version of the HCA DAT only calculates the revenue from
this for apartments. As such the model under-estimates the revenue in
those schemes where houses are being provided.

Scheme timings
2.38 The HCA DAT takes into account cashflow through the course of a
development. As such timings for different elements of a development
need to be inputted into the model. The city councils assumptions in
relation to this are set out below.
Build period (construction start / end)
2.39 Construction start was assumed as 3 months after the grant of planning
consent. This construction start time was assumed as standard for all
scheme typologies to ensure consistency across the appraisals.
2.40 The build period was assumed to vary for each of the 4 scheme
typologies, reflecting the different scheme sizes. A build rate of 40 units
per annum was assumed on sites for development comprising houses.
For schemes involving apartments it was assumed that the apartments
would be built out at a rate of 75 units per annum. These build rates
have been informed by the speed of actual delivery on residential sites
within the city. Taking this into account, the table below sets out the
build period assumptions for each of the scheme typologies:
Table 7 Build period by scheme typology
Scheme typology
Low density family housing
Mid density apartment scheme
High density apartment scheme
Mixed scheme of 80% houses and 20%
apartments

12

2ha site
21 months
36 months
60 months
27 months

Salford City Council housing viability assessment (August 2013)

Other timings
2.41 The DAT contains other timings that need to be populated. These and
the city councils assumptions in relation to them are set out in the table
below.
Table 8 Other development timings
Timing
Overall scheme end 1 month after the last open market sale
date
First market
4 months after the start of construction
housing sale
Last market housing For schemes comprising exclusively of houses, 2
sale
months after construction end
For schemes comprising of houses and apartments,
4 months after construction end
For schemes comprising exclusively of apartments,
6 months after construction end.
Timing of ground
The same as the overall scheme end date for all
rent payment
residential appraisals (i.e. one month after last open
(month)
market sale)

B. Land acquisition costs


B1. Value at which a landowner will sell
2.42

The Local Housing Delivery Group advice on viability testing states (at
pages 28 and 29) that an appropriate threshold land value should be
established and this should represent the value at which a typical
willing landowner is likely to release land for development, before
payment of taxes (such as capital gains tax). The Group recommend
that the threshold land value is based on an appropriate premium to
persuade landowners to sell, and that this would be in line with the
reference in the National Planning Policy Framework (NPPF) to take
account of a competitive return to a willing landowner.

2.43 Existing use values (EUVs) were established for a range of existing
uses across each of the five sales value areas. These EUVs were
benchmarked against data from the Valuation Office Agency (VOA)5
and values based on market evidence / discussions with Urban Vision
Property Services. They are shown in table 8 below.

Valuation Office Agency, Property Market Report 2011)

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Salford City Council housing viability assessment (August 2013)

Table 9 Amount required for landowners to sell


Low sales Mid/Low
Mid value
Mid/High
value
sales value
sales areas value sale
areas
areas (/ha) (/ha)
areas (/ha)
(/ha)

High value
sales
areas
(/ha)

Residential

600,000

850,000

1,100,000

1,350,000

1,600,000

Employment

375,000

450,000

550,000

650,000

650,000

Open Space

10,000

10,000

10,000

10,000

10,000

Town / local
centre use

750,000

750,000

750,000

750,000

750,000

Car parking

375,000

450,000

550,000

650,000

650,000

Agricultural

15,000

n/a

15,000

15,000

n/a

2.44 All of the appraisals have used the residential land value shown above.
This approach recognises that the residential land value is in effect the
worst case scenario (when compared to other values such as for
employment land, open space, agricultural land etc.), and that any
alternative (lower) land valuations would in any case result in a greater
margin of viability. It is considered to represent a value that would
persuade a landowner to sell as it would represent a competitive return.
Fees associated with land purchase
B2. Agents fee
2.45 This represents the agents fee for site acquisition payable as a
percentage of site value. This was assumed at 1% across all residential
appraisals, which is a commonly accepted figure according to the HCA
EAT user manual, and consistent with the Local Housing Delivery
Group advice (page 35).
B3. Legal fees
2.46 This was assumed at 600 across all residential appraisals, which is a
commonly accepted figure according to the HCA EAT User Manual.
B4. Stamp duty
2.47 The stamp duty rates6 as at July 2013 were applied as follows:
Table 10 Stamp duty rates
Purchase price
Up to 125,000
Over 125,000 and up to 250,000
Over 250,000 and up to 500,000
Over 500,000 and up to 1 million
6

Stamp Duty (% of
purchase price)
Nil
1%
3%
4%

Gov.uk website (accessed 24 July 2013).

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Salford City Council housing viability assessment (August 2013)

Over 1 million to 2million


Over 2 million
Over 2 million bought by corporate
bodies

5%
7%
15%

C. Development costs
C1. Build costs
2.48 Build costs per square metre of the gross internal floorspace were
derived from Building Cost Information Service (BCIS) residential build
cost data7. This data is set out at Annex 1.
2.49 The median was considered to represent the most appropriate value on
which to base build cost information, reflecting the fact that the mean
will be skewed by outliers and would be less representative where the
sample size is small.
2.50 It is important to recognise that build costs will typically be higher in
higher value areas, reflecting the higher quality of materials, fixtures
and fittings that typically feature in housing development in higher value
areas. In order to reflect this, the city council took the approach of
utilising the median build cost for the mid value sales area, the median
plus 5% for the mid / high sales value area, and the median plus 10%
for the high sales value area.
2.51 It was not considered appropriate to apply build costs below the
median for the low sales value and mid / low sales value areas, as this
would suggest that the city council is anticipating lower quality
development within these areas. In order to ensure that good quality
development can be brought forward across the city, the median build
cost data was used consistently for the mid sales value, mid / low value
and low value sales areas.
Table 11 Build costs by type and sales value area
Low
Mid/low
Mid
value
value
value
(/sqm) (/sqm) (/sqm)

Mid/high
value
(/sqm)

High
value
(/sqm)

Semi-detached (2 storey)

751

751

751

789

n/a

Townhouse (3 storey)

645

645

645

677

n/a

Detached

795

795

795

835

n/a

3 to 5 storey apartments

872

872

872

916

n/a

6+ storey apartments

n/a

n/a

n/a

n/a

1,178

BCIS, Build cost per sqm of gross internal floor area location adjusted to Greater
Manchester (updated 27 July 2013).

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Salford City Council housing viability assessment (August 2013)

Net to gross ratio for building costs (%)


2.52 It is necessary to apply a net to gross ratio for building costs as build
cost data is provided on the basis of gross internal floorspace, whilst
sales values are based on the net internal floorspace.
2.53 For apartments, there will be common areas (shared stairways,
corridors and reception foyers) which will be accounted for within build
cost data but will not be reflected in sales values (which will be based
on the net internal floorspace of the apartment units). For apartments,
an allowance was therefore made of the net internal floorspace plus
15% in order to account for common areas.
2.54 For houses, there are no common areas and therefore a net to gross
ratio of 100% was assumed. This approach is recognised as industry
standard, according to the HCA EAT user manual.
Abnormals
C2. Decontamination costs and timing
2.55 The land acquisition values (see above) were derived in the main from
the VOA property market report 2011 valuations. As already noted,
residential development typologies were assumed to be based on a
residential land value (recognising that any alternative land valuations
would in any case result in a greater margin of viability).
2.56 The 2011 VOA property market report methodology (page 33) confirms
that the identified residential land valuations are based on a beacon
suburban site of 0.5ha that is greenfield with no abnormal site
constraints. On this basis, all appraisals made a nil allowance for
decontamination costs, recognising that any site contamination issues
would result in a reduced land purchase value, subject to the proper
exercise of due diligence by the site purchaser.
C3. Demolition costs and timing
2.57 As with decontamination costs, the 2011 Valuation Office Agency
property market report methodology (page 33) confirms that the
identified residential land valuations are based on a beacon suburban
site of 0.5ha that is greenfield with no abnormal site constraints. On this
basis, all appraisals made a nil allowance for demolition costs,
recognising that any required demolition works would result in a
reduced land purchase value.
2.58 Notwithstanding this, the HCA DAT confirms that site preparation /
demolition costs are included in the BCIS build values which have been
used by the city council.
C4. Infrastructure costs and timing

16

Salford City Council housing viability assessment (August 2013)

2.59 This represents the total value of infrastructure costs (access roads,
services and drainage, landscaping etc) across the scheme and the
timing of the payment.
2.60 The 2011 Valuation Office Agency property market report methodology
(page 33) confirms that the identified residential land valuations are
based on a beacon suburban site of 0.5ha that is greenfield, and where
services are assumed to be available to the edge of the site.
2.61 From analysis of various development appraisals submitted as part of
schemes within Salford, and having regard to the advice of Urban
Vision Property Services, an overall rate of 13,500 per dwelling was
assumed for houses, with a reduction to 5,000 per dwelling for
apartments to reflect shared infrastructure cost savings.
2.62 In terms of timing of this payment, the following assumptions were
made:

Start of payment 2 months after planning permission granted (i.e.


1 month before start of construction period)

End of payment same as end of construction


C5. Carbon emissions / code for sustainable homes
2.63 A written ministerial statement of 30 July 2013 to the House of Lords by
Baroness Hanham8 confirmed there will be a requirement for a 6%
improvement in the carbon emission rate over the 2010 Part L Building
Regulation standards from 6 April 2014. This requirement will lead to
an increase in build costs that are not factored into the BCIS cost data
used in this assessment.
2.64 In August 2013 DCLG published an impact assessment relating to the
changes to Part L of the Building Regulations. This identified that the
average extra over cost for meeting the improved carbon emission rate
from the 2010 standard is 453 per dwelling9. This additional cost has
been applied to all dwellings across all of the residential appraisals.
2.65

It is not considered appropriate to make an allowance for meeting a


specific code for sustainable homes level, given that this is not
mandatory for new housing and that the government, subject to the
outcomes of a current consultation, proposes to wind down the role of
the Code10.

Other scheme costs


C6. Marketing and sales fees (% of market housing value)
8

Baroness Hanham (30 July 2013) Building Regulations: Part L. Written Statement
to the House of Lords
9
DCLG (August 2013) Changes to Part L of the building regulations: impact
assessment (page 1, last paragraph)
10
DCLG (August 2013) Housing standards review: consultation (paragraph 40)

17

Salford City Council housing viability assessment (August 2013)

2.66 Based on sample schemes within Salford, and consistent with the
Local Housing Delivery Group advice (page 35), a level of 4% was
assumed across all appraisals. The timing of this cost coincides with
the period between the first and last open market sale (see
assumptions above under values).
C7. Legal fees ( per market housing unit)
2.67 600 per market housing unit was assumed across all residential
appraisals, which is in line with established practice, according to the
HCA EAT user manual.
C8. Building design fees (% of build costs)
2.68 Building design fees are generally in the range of 8 to 10%, and so
having regard to this the mid-point of 9% was assumed for all
appraisals.
C9. Building contingencies (% of build costs)
2.69 This reflects the percentage of build costs that are set aside for
contingencies. An average level of 4% was assumed across all
residential appraisals.

D. Finance costs
D1. Interest rates
2.70 According to the HCA EAT user manual, the interest rate charged by
lenders is typically 3 5% above the 3 month London Inter Bank Offer
Rate (LIBOR) depending on the type of scheme, the perceived risk,
and the experience of the developer. Reflecting current uncertain
market conditions and recent appraisals submitted on schemes within
Salford, an interest rate of 7.51% was assumed (i.e. 7% above the
LIBOR rate of 0.51% as at 22 July 2013)11.
E. Developer Overhead and Return for Risk
E1. Developer profit
2.71 This represents the developer profit before taxation as a percentage of
the market housing value. According to the HCA EAT user manual this
typically lies within a range of between 17.5% and 20%. Having regard
to current market conditions where levels of risk are high, a figure at
the top of this range was considered appropriate. A level of 20% was
therefore assumed across all residential appraisals.
Overall surplus / deficit
2.72 The potential 'surplus' / deficit available from a development was
calculated by deducting total development costs, land acquisition costs,
11

Global-rates.com (accessed 22 July 2013).

18

Salford City Council housing viability assessment (August 2013)

finance costs and developer profit from the total gross development
sales value. The next section of this assessment sets out the results of
the viability appraisals.

19

Salford City Council housing viability assessment (August 2013)

3.

Assessment results

3.1

Having regard to the assumptions above, 13 appraisals were


undertaken in July 2013. The different appraisals are summarised in
the table below.

Table 12 Notional scheme appraisals


Appraisal
Site size
number
(ha)
Scheme typology
1
2.0ha
High density apartments
2
2.0ha
Low density houses
3
2.0ha
Mid density apartments
4
2.0ha
Mixed houses and
apartments
5
2.0ha
Low density houses
6
2.0ha
Mid density apartments
7
2.0ha
Mixed houses and
apartments
8
2.0ha
Low density houses
9
2.0ha
Mid density apartments
10
2.0ha
Mixed houses and
apartments
11
2.0ha
Low density houses
12
2.0ha
Mid density apartments
13
2.0ha
Mixed houses and
apartments

Sales value area


High
Mid/high
Mid/high
Mid/high
Mid
Mid
Mid
Mid/low
Mid/low
Mid/low
Low
Low
Low

3.2

It was considered appropriate to only assess the high density


apartment scheme in the high value residential sales area. This is
because the high residential sales value areas are only within parts of
the regional centre, and it is considered highly unlikely that an
apartment scheme of 300 dwellings per hectare would be developed
(or even permitted) outside of the regional centre. Lower density
schemes were not appraised in the high value areas on the basis that
high land values and the design context of sites in these areas, means
that such developments are unlikely to be built in those areas.

3.3

A summary for each appraisal is shown in the table below. A copy of


the full appraisals can be found at annex 2.

20

Salford City Council housing viability assessment (August 2013)

Table 13 Findings of appraisals


Appraisal

Site
size
(ha)

Scheme type

Sales value
area

2.0

High value

2.0

2.0

2.0

High density
apartments
Low density
houses
Mid density
apartments
Mixed

2.0

2.0

2.0

Low density
houses
Mid density
apartments
Mixed

2.0

2.0

10

2.0

11

2.0

12

2.0

13

2.0

Low density
houses
Mid density
apartments
Mixed
Low density
houses
Mid density
apartments
Mixed

Total capital
value of open
market housing

Total capital
value of scheme
(A)

108,900,000

113,284,615

65,016,415

4,134,135

21,780,000

Surplus /
deficit at
completion =
A (B+C+D)
22,354,065

Mid/High

20,345,000

20,345,000

8,192,601

3,167,436

4,069,000

4,915,963

Mid/High

38,896,000

39,472,923

21,344,536

3,332,626

7,779,200

7,016,561

Mid/High

28,015,000

28,063,462

11,800,065

3,197,295

5,603,000

7,463,101

Mid value
area
Mid value
area
Mid value
area
Mid/low value

17,215,000

17,215,000

7,765,807

2,594,382

3,443,000

3,411,811

32,912,000

33,488,923

20,227,316

2,783,985

6,582,400

3,895,223

23,925,000

23,973,462

11,192,245

2,624,301

4,785,000

5,371,916

14,085,000

14,085,000

7,640,607

1,992,819

2,817,000

1,634,574

Mid/low value

26,928,000

27,504,923

19,987,956

2,300,025

5,385,600

-168,657

Mid/low value

19,575,000

19,623,462

11,018,245

2,030,135

3,915,000

2,660,082

Low

10,955,000

10,955,000

7,515,407

1,448,785

2,191,000

-200,192

Low

20,944,000

21,520,923

19,748,596

2,215,198

4,188,800

-4,631,671

Low

15,225,000

15,273,462

10,844,245

2,088,599

3,045,000

-704,383

21

Total direct
costs (B)

Finance and
acquisition
costs (C)

Developer
profit (D)

Salford City Council housing viability assessment (August 2013)

3.4

As noted in chapter 2, the appraisals were run with land values and developer
profit as an input, and so therefore the output from the model is the residual
surplus / deficit (after land costs and developer profit have been deducted)
which would be available to be directed towards planning obligations.

Planning obligation requirements


3.5

The planning obligations SPD sets out the financial contributions that will
normally be sought from schemes comprising ten or more dwellings. These
are as follows:

Table 14 Planning obligations SPD requirements


Type of contribution
Houses and large
Apartments with 2
apartments
bedrooms or less
Open space provision 598 per bedspace
658 per bedspace
Public realm,
1,500 per dwelling
1,500 per dwelling
infrastructure and
heritage
Construction training
150 per dwelling
150 per dwelling
Climate change
200 per dwelling
200 per dwelling
Total
1,850 per dwelling + 1,850 per dwelling and
598 per bedspace
658 per bedspace
3.6

The educations contributions SPD sets out the financial contributions that will
normally be sought from development comprising ten or more houses.
Contributions are not sought from apartments. The scale of contribution is
calculated by multiplying the pupil yield factor (calculated with regard to the
number of bedrooms within a house) by the cost per primary pupil place. This
cost data will be updated annually by the city council on the basis of the most
up-to-date evidence. The cost data utilised below reflects the city councils
published 2013/14 financial year costs per primary pupil place12:

Table 15 Education contributions SPD requirements


Size of house
Primary pupil yield
Cost per dwelling
1-bed house
0
n/a
2-bed house
0.11
(9,165 x 0.11) = 1,008
3-bed house
0.22
(9,165 x 0.22) = 2,016
4-bed house
0.33
(9,165 x 0.33) = 3,024
5-bed house
0.44
(9,165 x 0.44) = 4,033
3.7

In addition to the financial contributions outlined above, a further charge of


2.5% is added to cover the administrative costs of ensuring that the
commuted sums are directed towards appropriate schemes.

3.8

The implications of affordable housing provision on development viability are


being considered through the production of a new housing supplementary
planning document, and they will depend on the precise proportion, tenure

12

Salford City Council (August 2013) Education contributions SPD: background document
on cost per primary pupil place and school capacity

22

Salford City Council housing viability assessment (August 2013)

and type of affordable housing that is being delivered. Where the current
requirement for 20% affordable housing would result in a development being
unviable then this or other planning obligations will be reduced accordingly to
ensure that an acceptable development can proceed.
3.9

Having regard to the requirements of the planning obligations and education


SPDs (but excluding affordable housing provision), the following contributions
by dwelling type and size will normally be sought:

Table 16 Planning obligation requirements (rounded to the nearest pound)


Dwelling
Dwelling
Planning
Education
Total
Total with
type
size
obligations
contributions obligation
2.5% admin
SPD
SPD
House
2 bed
3,644
1,008
4,652
4,768
House
3 bed
4,242
2,016
6,258
6,415
House
4 bed
4,840
3,024
7,864
8,061
House
5 bed
5,438
4,033
9,471
9,707
Apartment
1 bed
3,166
0
3,166
3,245
Apartment
2 bed
3,824
0
3,824
3,920
Apartment
3 bed
4,242
0
4,242
4,348
3.10 Having regard to the scheme typologies highlighted in table 1 above, the total
standard financial requirements are as follows:
Table 17 Total planning obligations by scheme typology
Scheme
Total dwellings
Planning
Education Total
Total with
typology
(2ha site)
obligations
SPD
planning
2.5% admin
SPD
obligations
Low density
70 dwellings (70
316,674
174,410
491,084
503,361
houses
houses)
Mid density
250 dwellings
896,292
0
896,292
918,699
apartments
(250 apartments)
High density 600 dwellings
2,171,160
0 2,171,160 2,225,439
apartments
(600 apartments)
Mixed
106 dwellings (21
460,128
212,719
672,848
689,669
houses and
apartments, 85
apartments
houses)
3.11 The table below shows the surplus / deficit at completion for the 13 appraisals,
and the impact that the above section 106 requirements has on it.
Table 18 Surplus / deficit after non affordable housing planning obligations
Appraisal Scheme type Sales value
Surplus /
Total
Surplus /
area
(deficit) at
planning
deficit after
completion
obligations
planning
obligations
1
High density
High value
22,354,065 2,225,439
20,128,626
apartments
2
Low density
Mid/High
4,915,963
503,361
4,412,602

23

Salford City Council housing viability assessment (August 2013)

Appraisal Scheme type

3
4
5
6
7
8
9
10
11
12
13

houses
Mid density
apartments
Mixed
Low density
houses
Mid density
apartments
Mixed
Low density
houses
Mid density
apartments
Mixed
Low density
houses
Mid density
apartments
Mixed

Sales value
area

Surplus /
(deficit) at
completion

Total
planning
obligations

Surplus /
deficit after
planning
obligations

Mid/High

7,016,561

918,699

6,097,862

Mid/High
Mid value area

7,463,101
3,411,811

689,669
503,361

6,773,432
2,908,450

Mid value area

3,895,223

918,699

2,976,524

Mid value area


Mid/low value

5,371,916
1,634,574

689,669
503,361

4,682,247
1,131,213

Mid/low value

-168,657

918,699

-1,087,356

Mid/low value
Low

2,660,082
-200,192

689,669
503,361

1,970,413
-703,553

Low

-4,631,671

918,699

-5,550,370

Low

-704,383

689,669

-1,394,052

Implications of the assessment


3.12 The above table shows that all of the scheme types in the low value area
(appraisals 11, 12 and 13) and the mid density apartment scheme in the
mid/low value area (appraisal 9) would be unviable, even without the payment
of any planning obligations. However, apart from these typologies, all of the
remaining typologies would remain viable with the payment of planning
obligations.
3.13

As noted earlier in this assessment, viability assessments can vary


significantly with only minor changes in assumptions, and therefore they can
only ever provide a relatively broad estimate of the potential scope of planning
obligations. For example, if there was to be a reduced developer profit of
around 14% (instead of 20% as assumed) in the low sales value houses
typology (appraisal 11) development would be viable, even with meeting the
planning obligations and education contributions SPD requirements.

3.14 Given the above, and that there are examples of schemes (both in relation to
sales value area and scheme type) being built / recently completed which are
theoretically unviable as shown in table 18 above, it is considered that the
requirements of the planning obligations and education contributions SPD
should be sought in all developments of 10 or more dwellings. Should it be
viable to provide these requirements affordable housing should also be
sought. Notwithstanding this, it is recognised that in practice there will also be
sites that although theoretically viable as identified above, would in practice
not be so.
24

Salford City Council housing viability assessment (August 2013)

3.15 Given the above, where developers consider that the cumulative effect of
policy requirements and planning obligations would compromise development
viability in relation to a particular scheme, the city council should enter into
negotiations with developers to agree a reduced contribution where
appropriate. This would require appropriate evidence to be submitted to the
city council by a developer.

25