RICS draft guidance note - Assessing financial viability in planning under the National Planning Policy Framework for England, 1st edition.

RICS draft guidance note - Assessing financial viability in planning under the National Planning Policy Framework for England, 1st edition

1 Introduction

The UK government's planning policies for England and its expectations of how these are to be applied, including the consideration and treatment of viability, were previously contained in the National Planning Policy Framework 2012 and in the Planning Practice Guidance 2014. RICS published the first edition of the Financial viability in planning guidance note in 2012 to provide practical guidance to its members on the implementation of these policies, in a format that would prove accessible and useful to all other stakeholders in the planning process.

In 2018, the government materially revised the National Planning Policy Framework (NPPF) and also published new Planning Practice Guidance (PPG), the latter including more detail on the specific issue of viability. All references to the PPG can be taken to refer to the Viability PPG, unless expressly stated that they relate to other parts of the PPG.

Some further refinements have been made since. The rationale for the 2018 changes to the NPPF and PPG was to address matters of concern or doubt identified during the practical implementation of the previous policy and guidance, particularly in relation to decision-taking, and to improve the transparency of the viability process overall.

In response, the RICS has published two documents:

  1. Financial viability in planning: conduct and reporting, RICS professional statement, in order to address professional behavioural matters and to clarify reporting requirements. This statement includes mandatory requirements for RICS members carrying out viability assessments.
  2. This guidance note, which replaces the 2012 Financial viability in planning guidance note. It provides guidance for carrying out and interpreting the results of viability assessments under the new NPPF 2018 and PPG 2018 (with revisions in February (NPPF) and May (PPG) 2019).

The Ministry for Housing, Communities and Local Government may change the content of the PPG at short notice and/or without consultation. Changes to the NPPF may also take place, albeit typically at longer intervals and with considerably greater advance notice. It is important that practitioners and other stakeholders in the process are aware of any changes to government policy and guidance, and the effect it may have on the advice contained in this guidance note. Following any relevant amendments to the PPG and/or NPPF, where RICS considers it necessary to clarify the extent to which existing advice remains applicable, revise that existing advice and/or provide new advice, notification of this will be published on our website at [link to be inserted prior to publication] and will have the same regulatory status as this guidance note. Unless and until such notification is published, this guidance note should be treated as having continued unaltered effect.

1.1 NPPF 2018 and PPG 2018

The NPPF sets out the government's planning policies for England and how these should be applied. It provides a framework within which locally-prepared plans for housing and other developments can be produced. It reinforces the delivery of sustainable development in accordance with up-to-date local plans. It asserts the plan-led system as the main determinant when it comes to exercising choices about what and where to develop. Plans should be both aspirational and deliverable (NPPF paragraph 016). This is in accordance with section 38(6) of the Planning and Compulsory Purchase Act 2004, which requires that 'If regard is to be had to the development plan for the purpose of any determination to be made under the planning Acts the determination must be made in accordance with the plan unless material considerations indicate otherwise'.

To achieve deliverability, plans need to contain policies that, taken as a whole in the context of the development envisaged by the plan, are not likely to make that development financially unviable.

A key determinant of financial viability is the balance between housing delivery and the provision of developer contributions. If developer contributions are set too high, landowners may not release land. The extent to which landowners may decide to hold on to land will depend on various factors: the supply of, and demand for, housing in the locality; the location of the land relative to other developments in the area; whether the land is a strategic site essential to plan delivery; and landowner expectations in relation to a changing planning regime. Paragraph 002 of the PPG states that an FVA 'should not compromise sustainable development but should be used to ensure that policies are realistic, and that the total cumulative cost of all relevant policies will not undermine deliverability of the plan'. Plan-makers will need to consider these factors when setting developer contributions at levels that allow a 'suitable' return for the developer (PPG paragraph 018) and a 'minimum return at which it is considered a reasonable landowner would release the land for development' (PPG paragraph 013).

Landowner expectations may be unrealistic, and landowners and developers will need to respond to a changing planning regime. PPG paragraph 002 states that the 'price paid for land is not a relevant justification for failing to accord with relevant policies in the plan'. It also states that landowners and site purchasers 'should consider this when agreeing land transactions'. This may take time to achieve, and plan-makers will need to balance these influences through successive plans in order to maximise developer contributions.

FVAs are undertaken to determine the balance between housing delivery and developer contributions. The PPG sets out the framework for carrying out FVAs for both plan-making and decision-taking.

The most common uses of FVAs are:

  • formulating planning policy through local plans (and other relevant plans)
  • assessing the composition, quantity and timing of planning obligations, including on- and off-site affordable housing, affordable housing credits and payments in lieu of affordable housing
  • estimating viable compositions of affordable housing tenures
  • assessing applications that incorporate enabling development for heritage assets and other forms of enabling development
  • assessing the bulk, scale and massing (and specification relative to cost and value) of a proposed scheme
  • reviewing land uses
  • assessing continuing existing uses in terms of obsolescence and depreciation
  • dealing with heritage assets and conservation issues
  • carrying out pre-commencement viability reviews, and reviews throughout the delivery period of the development
  • confirmation of Compulsory Purchase Orders on viability grounds and
  • testing Community Infrastructure Levy (CIL) charging schedules.

CIL charging schedules are not formally part of the relevant plan, but they should generally be consistent with that plan and should be viability tested in a similar way. There are benefits to undertaking infrastructure planning for the purpose of plan-making and setting the levy at the same time (The Community Infrastructure Levy (Amendment) (England) (No. 2) Regulations 2019 ('CIL Regulations 2019') paragraph 012, reference ID 25-012-20190901).

Paragraph 002 of the PPG states that FVAs are required primarily at the plan-making stage. Once policies on developer contributions have been set in the plan, planning applications that comply with them should be assumed to be viable (NPPF paragraph 57). Where applicants do not feel that plan-compliant obligation levels are viable, it is up to them to demonstrate whether particular circumstances justify the need for an FVA at the decision-taking stage. Guidance on FVAs at the plan-making stage is set out in chapter 3, and at the decision-taking stage in chapter 4.

Paragraph 57 of the NPPF also gives guidance to plan-makers regarding the weight to be placed on FVAs when making decisions: '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.'

The assessment of the BLV is an important part of the FVA. The PPG prescribes the existing use value (EUV), plus a premium, as the starting point for assessing the BLV, but recognises that the alternative use value (AUV) can also be used in some circumstances. Chapter 5 and related appendices provide guidance on how to assess the BLV based on the principles set out in PPG paragraphs 013 to 017. This includes advice relating to the assessment of the AUV, EUV and premium.

Regarding transparency, NPPF paragraph 57 and PPG paragraph 010 state that 'any viability assessment should follow the government's recommended approach to assessing viability as set out in this Planning Practice Guidance and be proportionate, simple, transparent and publicly available'. This applies to FVAs carried out to support plan-making and decision-taking. Paragraph 010 states that 'Improving transparency of data associated with FVA will, over time, improve the data available for future assessment as well as providing more accountability regarding how viability informs decision-taking.'