Posted by: Adam Roake | March 16, 2010

LAND VALUES AND AFFORDABLE HOUSING

This recent Secretary of State appeal decision, OT100-066-192, sets a clear precedent when considering the effects of the recession on land values and viability. Both the Inspector (IR 14.2.15-14.2.22) and the Secretary of State (para.11-14) are quite clear that if the developer paid too much for land in the open market that is its problem; it should not be allowed to avoid affordable housing and other relevant planning obligations on grounds of reduced viability.

As the Inspector noted, the developer’s proposition would have had the effect of

“…protecting historic land values as well as insulating the developer against a risk for which he is already indemnified by the profit margins. Put another way, their approach protects them from historic falls and achieves a 20% profit on historic losses.” (IR 14.2.22)

Planning obligations have always been intended to tax gains in land value resulting from planning permission and clearly there would be significant gain from the previous use as agricultural land. The developer bought the land in 2007 on the open market and paid the full hope value, principally because the land was allocated in the Local Plan for an urban extension. The loss in land value resulting from the recession is a commercial matter and not a planning issue sufficient to set aside policy requirements for affordable housing. Both Secretary of State and Inspector considered that the developer had already priced in the risk of land values falling by allowing a 20% profit margin and merely demonstrating it would make less profit as a result of market forces (albeit market forces on a scale we haven’t seen for some time!) did not demonstrate that meeting the 40% affordable housing requirement made the scheme unviable.

This approach has been consistently applied for some time now and developers should be well aware that ‘unviability’ is not a simple matter of demonstrating they would make less money than they would like. Both the GLA Affordable Housing Toolkit and the HCA/GVA Grimley Economic Appraisal Toolkit require a comparison between the Residual Land Value obtained by application of the Toolkit and either the existing use value or an alternative use value. ‘Unviability’ is only demonstrated when the RLV is not significantly higher than one or other of the alternative land uses so that a proposed residential use is unlikely to come forward. This was the argument I ran successfully with Goldcrest at Station Road, Addlestone, (DCS ref 100-053-473) where we achieved a reduced affordable requirement of 35% (rather than 40%).

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