Viability vs Sustainability (The Harman Report on Viability Testing Local Plans)

Viability testing seems to me to be broadly a knee jerk response from the housebuilding industry to being forced to implement planning policies which do not appear to them to add value. It is unfortunate that the effort so far appears to be to use viability testing to demonstrate the lack of market demand for sustainable development before the market has had a chance to express this demand. Perhaps more effort could be put into marketing the product to the customer in ways that the customer can understand before taking it off the shelves?

“An individual development can be said to be viable if, after taking account of all costs, including central and local government policy and regulatory costs and the cost and availability of development finance, the scheme provides a competitive return to the developer to ensure that development takes place and generates a land value sufficient to persuade the land owner to sell the land for the development proposed. If these conditions are not met, a scheme will not be delivered.”
Local Housing Delivery Group

Using this model, development will happen where it gives a developer and a landowner returns. But not where it doesn’t. The logical outcome will be higher quality development where land values are high, and lower quality development where land values are low. So poor people get low quality housing, and rich people get high quality housing, unless some party in the discussion is able to

-reduce profit levels (developer)

-put in some money or land (local authority)

-reduce policy requirements, usually to do with renewable energy, affordable housing, or S106 (local authority)

I fully accept the necessity for development to be profitable, but viability testing as described here is very limited to local economic conditions.

The report acknowledges that:

Local Plans need to deliver development that reflects community aspirations, is
of high quality, protects the natural environment, is serviced by the necessary
infrastructure and supports the transition to a low carbon economy in order to
mitigate the impact of climate change.

But adds :

However….consideration of viability is a key factor

The purpose of the viability assessment is to arrive at benchmark land values which will allow development to take place. But how is it possible to arrive at such a value in the complex environment of the property market?

-Viability must take account of the ‘Duty to Cooperate’ between authorities and utilities.

-Viability must take account of the variety of local economic conditions.

-Viability must take account of current economic conditions.

It seems to me that Viability must take account of so many things that Viability cannot possibly be accurate or realistic, and the question must therefore be asked, how useful can it possibly be?

The process

The proposed process for carrying out viability testing is that all parties involved in development should cooperate. I can’t envisage a group of developers discussing with planners how to viably develop a site years before the development takes place. How would anyone maintain a competitive commercial advantage in such a situation?

I can see a process where a contracting partner works with a Local Authority to develop the Local Authority’s sites in a planned manner, and where a funding partner is involved to discuss the financial arrangements for funding. But where there is a competitive relationship between parties it is difficult to see how they can sit across a table and discuss viability in any meaningful way.

No consideration is given to the prospect of long term values. Many development sites are not viable in the short term but can deliver significant value in the long term.

The most straightforward way to assess plan policies for the first five years is to
work on the basis of current costs and values.

This may be the most straightforward, but it is also the development model most favoured by the nations housebuilders whose business model is based on immediate sales, rather than on a developer model where value can be retained in the asset and allowed to grow over a long term.

(It is interesting that the working group for this report contained no developers, only housebuilders)

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