Community Infrastructure Levy And Whole Plan Viability 4

Community Infrastructure Levy And Whole Plan Viability 4 July 2013 Steve Woolley Peter Brett Associates LLP

CIL & WPV • • • Context Infrastructure delivery implications CIL Making it add up – a deliverable plan Consultation & Examination Peter Brett Associates LLP

CONTEXT Peter Brett Associates LLP

Framework • • • Local Plan Requirements NPPF CIL Legislation CIL Guidance ‘Harman’ Guidance Peter Brett Associates LLP

Local Plans - NPPF “…should be aspirational but realistic. ” (NPPF Para. 154) “…. should be deliverable. ” (NPPF Paras. 173 & 182) • Key elements of deliverability: • Availability of sites (NPPF Para. 47) • Policy burdens and viability (NPPF Para. 173) • Infrastructure delivery (NPPF Para. 177) Peter Brett Associates LLP

Local Plans – Harman on viability • Guidance on assessing plan viability • Highlights the balance members need to strike Peter Brett Associates LLP

Local Plans – Infrastructure delivery “It is. . . important to ensure that there is a reasonable prospect that planned infrastructure is deliverable in a timely fashion. ” (NPPF Para. 177) Peter Brett Associates LLP

Local Plans – Infrastructure delivery • Key factors of infrastructure deliverability: • • Cost and affordability Delivery body agreement Availability of land Timing – for all of the above • Increased focus on this • Plan for real-world delivery Peter Brett Associates LLP

Whole Plan Viability in a nutshell • Using evidence to inform…. • Striking the balance between Policy / AH / Infrastructure / Viability • Ensuring the plan is…. • Sustainable • Deliverable • ……In the real world. Peter Brett Associates LLP

Not a one-off task “The assessment process should be iterative. Draft policies can be tested based on the assumptions agreed with local partners, and in turn those assumptions may need to be revised if the assessment suggests too much development is unviable. This dynamic process is in contrast to the consideration of viability during development management, when policy is already set. “ (Harman Page 11) Peter Brett Associates LLP

COMMUNITY INFRASTRUCTURE LEVY Peter Brett Associates LLP

Purpose of CIL - Pro-growth • Contributions from development • Respect viability In order to • Bring forward infrastructure (etc. ) • Deliver the Local Plan (Planning Act 2008 S 205(2)) Peter Brett Associates LLP

Why CIL? – CIL Vs S 106 CIL S 106 • • • Deals with cumulative impact Flexible strategic fund Most development pays Fixed rate(s), Predictable Major work to establish Easy(ish) once established ‘Fairer, faster and more certain and transparent’ (DCLG) Peter Brett Associates LLP No tarriffs after 2014(5? ) Requires development link Many had no S 106 Subject to negotiation ‘Known Quantity’ Case by case negotiation NB: S 106 remains. R 123 lets you ‘draw the CIL/S 106 line’ locally.

The CIL framework The Planning Act 2008 (as amended by Localism Act 2011) Part 11 (sections 205 -225) Purposes of CIL – broad framework of CIL – plus some detail on charging schedule examination, charities, charging authorities. . . The CIL Regulations 2010 (as amended: 2011, 2012, 2013) Scope of CIL – liable parties – collection – enforcement – definitions – monitoring – procedures – exemptions and exceptions – alterations to section 106… Guidance and information CIL Statutory Guidance and CIL overview, CIL Relief, and CIL Collection documents Peter Brett Associates LLP

Key Features of CIL • • • Optional for LPA to set A Tax - Mandatory once set Set with regard to evidence Proceeds Pooled – no link to contributor Spend on infrastructure to support development S 106 ‘scaled back’ Peter Brett Associates LLP

Recent changes • December 2012 CIL guidance • • Focus on strategic sites “Show and explain” how CIL will deliver plan Clarity at Examination on s 123 list and CIL v s 106 More emphasis on engagement • CIL (Amendment) Regs 2013 • • LPAs must pass 15 -25% of CIL revenue to local areas No infrastructure spending tie for that % Peter Brett Associates LLP

SPENDING CIL Peter Brett Associates LLP

Spending CIL • Authorities can only spend on infrastructure to support the development of their areas • Includes provision, improvement, replacement operation or maintenance • “Infrastructure” includes (list in Act not exhaustive): • • • flood defence open space recreation and sport roads and transport facilities education and health facilities [not affordable housing – removed by CIL regulations] (Planning Act 2008 S 216) Peter Brett Associates LLP

Spending CIL • Flexible strategic fund • No connection to contributor • Proportion to neighbourhoods • No infrastructure spending tie • S 106 ‘scaled back’ – But not for AH • Site focus & no pooling • CIL/106 mix must be transparent • Consult on CIL spending list Peter Brett Associates LLP

Planning Obligations and CIL Regs. change use of S 106 (but not S 278): • Site Focus. From April 2010 law says obligations re. buildings must be: • Necessary to make acceptable in planning terms • Directly related • Fair and reasonably related in scale and kind (Reg. 122) • No more s 106 infrastructure tariffs, from April 2014 (15? ). • Max 5 S 106 s can be pooled • Does not apply to affordable housing (Reg. 123(3) • No double charging via s 106 for things to be funded from CIL, from the point CIL introduced • Via a list of CIL spending intentions - aka. “Reg. 123 list” (Reg. 123(2)) Peter Brett Associates LLP

Regulation 123 List Possible approaches to Regulation 123(2): • No list – this would mean you intend to fund all infrastructure via CIL - you could not use s 106 for any infrastructure • Broad list – eg. state you would use CIL to fund health infrastructure - you then could not use s 106 for any health infrastructure. BUT - you could use S 106 to fund other infrastructure types not on the list • Specific/Mixed list – you state you would use to CIL to fund primary schools, but not one specific school – you then could use S 106 to fund that primary school. BUT could not use it to fund other primary schools. You could use S 106 to fund other infrastructure not on the list. Peter Brett Associates LLP

Regulation 123 list – Key points • Transparency is vital – be clear • Mixed approaches must be justified • At examination, must set out: • What will be on the list • How S 106 will be used • How any S 106 policies will be varied • Good practice to include in consultation • Must consult on later changes to the list Peter Brett Associates LLP

Neighbourhood Funding In neighbourhoods where development occurs: • If parish/local council, CA Passes over: • If no N/hood plan - 15% to parish (£ 100/dwelling/yr cap) • If N/hood plan – 25% to parish (no cap) • Local council to engage with CA over infra. priorities • If no local council, CA consults neighbourhood and spends: • If no N/hood plan – 15% (£ 100/dwelling/yr cap) • If N/hood plan – 25% (no cap) • CA expected to set out its neighbourhoods and consultation methods Peter Brett Associates LLP

Neighbourhood Funding • Parish or CA may spend the 15/25% on: • Infrastructure, or • “anything else…. concerned with addressing the demands that development places on an area” • Intention is to incentivise acceptance of development Peter Brett Associates LLP

LIABILITY Peter Brett Associates LLP

What is liable? • Development of buildings • Where people normally go • Over 100 m 2 – but any size new dwelling • For which permission granted post CIL (includes PD rights) • Net new-build GIA – charged £/m 2 • Refurbishment & change of use not liable (NB dwellings) • Demolished GIA netted off, but • Only if in use for 6 mths in 12 before permission • What doesn’t pay • • Non Buildings – not liable Permission pre-CIL (inc. outline) – not liable Below 100 m 2 (except new dwelling) – not liable Charities (exempt) & Social housing (100% relief) Peter Brett Associates LLP

Exemptions & Reliefs • Mandatory exemption for development for charitable purposes (+ discretionary charitable investment relief) • Mandatory 100% relief for social housing Peter Brett Associates LLP

Who pays? • Liability runs with the land (land charge) • Anyone can accept liability • Incentives to do so • Defaults to landowner(s) Peter Brett Associates LLP

Paying CIL • Liability notified with planning permission • Fixed & non-negotiable • Virtually no scope for individual exceptions • Due 60 days after commencement, but • LA can set instalment policy • Can agree to transfer land (but not construct infrastructure) • Penalties for non payment • • Surcharges & interest Stop notices Distress / sale of goods Charging order / prison Peter Brett Associates LLP

Exceptions and Instalments • Optional Policies the CA may choose to set • Can be done at any time • Are not part of the charging schedule • Exceptional Circumstances Policy • For rare exceptions only - severely limited by Regulations & State Aid Law • Instalments Policy • Must apply to all • Vary payment deadlines by (only) • Time from commencement • Total liability • Amount and number of instalments Peter Brett Associates LLP

SETTING CIL Peter Brett Associates LLP

CIL - setting • Optional for LPA • A Tax – must be paid • Based on evidence: • Development in Local Plan Strategic Sites Affordable Housing • Need for infrastructure • Viability of development Peter Brett Associates LLP

Setting a rate • CIL is designed to have a positive economic effect – it must support the development of the authority’s area (not threaten Local Plan delivery) (CIL Guidance Para 8) • A CA must look at the potential effects of charges “taken as a whole” on the viability of development “across its area” (CIL Reg 14(1)(b) ) • The law effectively recognises that the rate set may put some development at risk – this is a judgement for the CA Peter Brett Associates LLP

Pro-Growth Balance • Must “aim to strike what appears to the LPA to be an appropriate balance between”: § Meeting all or part of the infrastructure funding gap; and § The potential impact of CIL on the economic viability of development across its area. • Must explain this judgement at examination Peter Brett Associates LLP

Differential rates 1 • Differential rates are a useful tool, but be careful… • Only lawful criteria are “intended use” and/or “zone” Plus • Differential rates must (only) be based on economic viability evidence (CIL Reg. 13) NB – “use” not tied to Use Classes Order Peter Brett Associates LLP

Differential rates 2 • Differential rates can be used to: • Avoid threat to viability of particular uses vital for Local Plan delivery • Ensure development envisaged by the Local Plan can remain viable across the area, where viability differs by zone • Maintain viability of strategic sites with particular costs eg. S 106 infrastructure needs (eg primary school). But • Avoid complex rate structures. More differential rates mean more evidence is needed. Peter Brett Associates LLP

SETTING CIL: EVIDENCE Peter Brett Associates LLP

Charge setting evidence The Charging Authority “must use appropriate available evidence to inform…preparation of a charging schedule” (Planning Act 2008 S 211(7 A) - with my underlining) Peter Brett Associates LLP

Charge setting evidence: 1. Up to date Plan • CIL Guidance: “Gov’t expects ……‘appropriate evidence’ includes an up-to-date Plan for the area…. ” • NPPF: “where practical, CIL should be worked up alongside the Local Plan” Peter Brett Associates LLP

Charge setting evidence: 2. Infrastructure • Base evidence on IDP supporting the Plan • Supplement if necessary • Demonstrate an infrastructure funding gap • Need to fund infrastructure vs. existing funding streams • Consider CIL / S 106 balance • Clear S 106 policies in support • CIL spending priorities (R 123 list) Peter Brett Associates LLP

Charge setting evidence: 3. Viability • Area-based approach • not threaten Plan as a whole • Not an exhaustive evidence base • Appropriate range of site types • Particular focus on strategic sites • Evidence “informs” the charge • No need to exactly mirror evidence - pragmatism • Take policy costs into account e. g. affordable housing • CIL must leave room to deliver them Peter Brett Associates LLP

Exceptions and instalments • Ignore these when testing viability: • Exceptional Circumstances Policy • Instalments Policy • Charging schedule must stand on its own • Proposed use of these policies is irrelevant to the examination’s consideration of viability Peter Brett Associates LLP

How does it look? Peter Brett Associates LLP

Peter Brett Associates LLP

Consultation • Engage developers and other LAs (neighbours, upper & lower tier) early - and throughout the process: • • On viability On spending proposals and CIL / s 106 balance • CIL Guidance emphasises the need for this • Preliminary Draft Charging Schedule – no legal minimum. Guidance suggests 6 weeks. Minimum statutory consultees listed. • Draft Charging Schedule – minimum 4 week consultation period. Guidance suggests 6 weeks (CIL Regs 15 & 16) Peter Brett Associates LLP

Examination • Secretary of State has no role • LA appoints “independent” person with “appropriate qualifications and experience” to consider representations and establish: • The law has been complied with • Charging schedule supported by appropriate available evidence • Rates consitent with and informed by evidence of viability across the area • Evidence shows rates would not threated delivery of plan as a whole Peter Brett Associates LLP

Points from CIL examinations • Much discussion of infrastructure, but examiners not challenging IDPs • Established that rates “informed” by evidence • Representations focus on viability assumptions • Examiners looking for a reasonable viability ‘buffer’ • Potential threat to AH policy delivery has become a key focus NB: new requirement to “show & explain” the balance Peter Brett Associates LLP

Direction of travel? 2013 consultation 15 areas for possible change - including: • • Extension to pooled s 106 deadline - 2015? Require evidence on “appropriate balance”? Differential rates by size? Allow payment ‘in kind’? AH relief for Discounted Market Sale homes? Easier to net off existing space? Exemptions policies easier to apply? Exempting self-build? Peter Brett Associates LLP

MAKING IT ADD UP: VIABILITY & DELIVERABILITY Peter Brett Associates LLP

NPPF on WPV “Plans should be deliverable” “…. the sites and the 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. ” “…important to ensure that there is a reasonable prospect that planned infrastructure is deliverable in a timely fashion” NPPF, Paras. 173 & 177. Peter Brett Associates LLP

CIL Guidance Deliver the Plan – Show how: “…charging authorities should show and explain how their proposed levy rate (or rates) will contribute towards the implementation of their relevant Plan and support the development of their area. As set out in the NPPF in England, the ability to develop viably the sites and the scale of development identified in the Local Plan should not be threatened. ” April 2013 CIL Guidance, Para 8. Peter Brett Associates LLP

Harman • ‘a Local Plan can be said to be deliverable if sufficient sites are viable to deliver the plan’s housing requirements over the plan period. ’ • Sites are 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. ’ Peter Brett Associates LLP

Viability 1 - Many impacts Peter Brett Associates LLP

Viability 2 – Key CIL / WPV variables Peter Brett Associates LLP

Viability 3 - £ 200 k Semi Peter Brett Associates LLP

Viability 4 – Residual Valuation Value of Completed Development Costs Residual Land Value (Site with Planning Permission) Development Costs include: • Construction Costs – Inc. national building standards etc. • [Site abnormals for specific sites (eg. Decontamination, burying pylons, servicing remote greenfield)] • Finance costs • Developer Profit • Local Policy Costs – initially without CIL & affordable housing Peter Brett Associates LLP

Viability 5 - Major policy costs (excl AH & CIL) • • • Carbon Policy or Design Policy SANGS-type environmental charge Building regulation changes Public Open Space Site Density S 106 (other than AH) Peter Brett Associates LLP

Viability 6 – Viable? Residual Land Value Benchmark Land Value Theoretical Max £ for CIL & AH • Benchmark land value (aka Threshold): • price a landowner in the area would sell for • For area-wide appraisals takes account of average ‘abnormal’ site preparation costs • If the result is negative, development is not viable Peter Brett Associates LLP

Viability 7 - Assumptions • Values used are based on assumptions • Some Plan policy related • Some market related • These are critical to the outcome • Test the latter via Local engagement • Failure to do so could lead to: • Hostile representations • Failure at examination Peter Brett Associates LLP

How much detail? • Harman says site typologies approach is sensible (P. 11) • ‘does not require a detailed viability appraisal of every site anticipated to come forward over the plan period… suggests a more proportionate and practical approach in which local authorities create and test a range of appropriate site typologies reflecting the mix of sites upon which the plan relies’. • CIL Guidance April 2013 goes a bit further on site sampling (Para. 27) • ‘charging authority should sample directly an appropriate range of types of sites …focus should be in particular on strategic sites on which the relevant Plan relies and those sites (such as brownfield sites) where the impact of the levy on economic viability is likely to be most significant. ’ • Harman reminds us this is high level (P. 15) • ‘The role of the test is not to give a precise answer as to the viability of every development likely to take place during the plan period. No assessment could realistically provide this level of detail…rather, it is to provide high level assurance that the policies within the plan are set in a way that is compatible with the likely economic viability of development needed to deliver the plan. ’ Peter Brett Associates LLP

So, what development to test? Plan priorities: • Housing is the major element • Specific strategic sites • ‘Typical’ sites • Plus other plan priorities • • Offices and industrial ? Retail? Hotels? Student accommodation? Peter Brett Associates LLP

NPPF on Housing Deliverability viability and time • For housing - Plan must show • Deliverable sites over Yrs 0 -5 (viable, suitable location, available - now) • Developable sites over Yrs 6 -10 + onwards if possible (suitable location, ‘reasonable prospect for viable development at the point envisaged’) NPPF Para. 47 • Time of development is critical Peter Brett Associates LLP

So, to test no threat to delivery • Examine the emerging plan • Test GEOGRAPHY + POLICY + TIME • Geography: dev’t location and viability zones • Policy: cost effects on viability (inc. CIL, AH) • Time: • Check Yr. 0 -5 sites ‘deliverable’ (viable, available, suitable location), now • Check Yr. 6 -10+ sites ‘developable’ (reasonable prospect of viable development) • Then tweak policy costs up/down • Iterative process Peter Brett Associates LLP

Peter Brett Associates LLP

Peter Brett Associates LLP

Price Contours Peter Brett Associates LLP

Location of development Peter Brett Associates LLP

Check the hypothesis: development appraisals • Development appraisals are necessary • Price heat map only a proxy for viability testing • Formal viability testing combines • Costs of development and • Up-to-date local sales values from agents and developers, against • Benchmark land values (what landowner will sell for) also from local agents, developers • Pulling together these factors gives an indication of the CIL/AH available Peter Brett Associates LLP

The important bits Value areas Lower Value Houses – Houses – Flats Higher Value Houses – Houses – Flats - No of dwellings 1 5 15 50 100 20 Density 30 30 30 65 Residual Value Policy Off Per Ha £ per unit £ 689, 769 £ 22, 992 £ 690, 566 £ 23, 019 £ 617, 033 £ 20, 568 £ 537, 152 £ 17, 905 £ 322, 552 £ 10, 752 -£ 520, 865 -£ 8, 013 £ 1, 064, 821 £ 35, 494 £ 1, 062, 508 £ 35, 417 £ 1, 006, 543 £ 33, 551 £ 878, 206 £ 29, 274 £ 618, 667 £ 20, 622 £ 42, 057 £ 647 Per £psm £ 270 £ 271 £ 242 £ 211 £ 126 -£ 114 £ 418 £ 417 £ 395 £ 344 £ 243 £ 9 Benchmark Per Ha £ per unit £ 500, 000 £ 16, 667 £ 400, 000 £ 13, 333 £ 400, 000 £ 6, 154 £ 600, 000 £ 20, 000 £ 500, 000 £ 16, 667 £ 500, 000 £ 7, 692 Cost of S. 106 Per £psm £ 196 £ 157 £ 87 £ 235 £ 196 £ 109 Cost of Affordable Per Ha per unit Per £psm £ 15, 000 £ 500 £ 6 £ 15, 000 £ 500 £ 6 £ 15, 000 £ 500 £ 6 £ 32, 500 £ 7 Per Ha £ 275, 400 £ 275, 400 £ 394, 875 £ 309, 825 £ 309, 825 £ 447, 525 £ psm £ 108 £ 108 £ 86 £ 122 £ 122 £ 98 Potential CIL overage Per Ha -£ 85, 631 -£ 84, 834 -£ 58, 367 -£ 138, 248 -£ 352, 848 -£ 1, 315, 740 £ 154, 996 £ 152, 683 £ 196, 718 £ 68, 381 -£ 191, 158 -£ 905, 468 £ per sq. m -£ 39 -£ 29 -£ 60 -£ 144 -£ 294 £ 55 £ 54 £ 71 £ 21 -£ 81 -£ 204 Notional scheme tested CIL theoretically payable Peter Brett Associates LLP

Before we start • Avoid setting CIL and other policy costs at the maximum theoretical charge. • Because we can’t do it so precisely • We don’t know where the maximum is, because • Markets bump up and down • All sites are different • You can’t entirely build in risk perceptions, or market sentiment • So we leave a buffer Peter Brett Associates LLP

So how big is ‘the buffer’? • Knock off a set percentage from theoretical maximum? • Too mechanical. Use professional judgement • We take into account • The strength of the market in each zone • (The better the market the higher we can push) • Historical performance • This will vary by sector and/or by use Peter Brett Associates LLP

‘AH Policy off’ – possible overage for CIL with no affordable housing Peter Brett Associates LLP

Peter Brett Associates LLP

AH Policy on AH set at just 5% in this case Peter Brett Associates LLP

Other things being equal, potential developer contribution is fixed by local market conditions Peter Brett Associates LLP

If revising Plan & setting CIL this leads to The “Other Balance” Peter Brett Associates LLP

Collect more CIL for infrastructure, and the amount available for affordable housing falls… Peter Brett Associates LLP

…alternatively, requiring more affordable housing through S 106 means less CIL for infrastructure Peter Brett Associates LLP

For a new plan - ‘Pick and Mix? ’ geographically variable AH policy with geographically variable CIL. • Perhaps: • In lower area = • In mid area = • In higher area = Peter Brett Associates LLP £ 0 CIL & 0% AH £ 0 CIL & X% AH £Y CIL & X% AH

But if you already have a Plan…. • Policies are set • May be no appetite to revisit AH elements • Plan is King • Must aim to deliver AH target • And explain how • One side of the “other balance” is fixed Peter Brett Associates LLP

Peter Brett Associates LLP

Time factor - Which sites are sampled in more detail? • Remember CIL guidance wants ‘strategic’ sites tested; AND • NPPF wants to have more detail on Y 0 -5 sites • To satisfy both: we need to look at strategic (bigger), near-term sites • And review Y 6 onward sites Peter Brett Associates LLP

Need something like this - NPPF requires one (para. 47) Peter Brett Associates LLP

So you broadly need to know… • For the Y 0 -5 sites… • Are they deliverable (viable + suitable location + available) now? • For the Y 6 -10, 11 -20 sites… • Are they developable (reasonable prospect of viable development) at point envisaged? • Viability sampling needs to confirm this • Sensitivity testing on recovering values to look at long term potential you don’t want too short a sell -by date Peter Brett Associates LLP

Viability testing on other uses • Focus on Plan priorities: • • • Offices and industrial ? Retail? Hotels? Student accommodation? Residential care homes? • Consider ‘standard charging’ • Consider what is unlikely to pay: • Exemptions, redevelopment, change of use Peter Brett Associates LLP

Home and dry? Peter Brett Associates LLP

GET THE STORY STRAIGHT Peter Brett Associates LLP

Prepare for Examination • Viability evidence is only part of what’s needed • CA needs a clear story for examiner 1. 2. 3. 4. Where growth is going When it’s going to get built (and that it will) What infrastructure is needed & when, How you’re going to: • • pay for necessary infrastructure eg via CIL & S 106 Deliver affordable housing targets over Plan life • Inspector understands • you don’t have a crystal ball on the economy • you don’t know where all infrastructure funding is coming from • But increased emphasis on economic reality. Peter Brett Associates LLP

QUESTIONS? Peter Brett Associates LLP

RECAP Peter Brett Associates LLP

Handout • Sets out: • Aim • Key objectives • Task – in stages • But don’t forget that WPV is an iterative process Peter Brett Associates LLP

EXERCISE Peter Brett Associates LLP

Workshop Questions 1. Your client is a developer. They have valuers examining the assumptions, but want at least two other evidence issues to include in their representation. Can you help them? 2. Takeaway and betting shop operators are concerned about the effect of the charge. Could they make a representation? On what grounds? 3. Imagine SPAR have made a representation: small convenience stores under 400 m 2 will be hit by a £ 150 CIL they can ill afford. How might the LA respond? 4. Other Representations: 1. 2. Cite cashflow problems for small builders and call for phased payments for small developments Say developments of under 10 homes don’t provide on site AH and so should pay higher CIL – the ‘flat rates’ in each zone are unfair How might the LA respond? Peter Brett Associates LLP