JRF call for guidelines on viability assessments

Viability assessments, like statistics, can be used to prove just about anything.  Interesting that the Joseph Rowntree Foundation have found that recent changes to the planning system have made it even more difficult to secure social housing from private development.  Reported in Inside Housing.

Viability assessment guidelines should be introduced to make it more difficult for developers to reduce affordable housing in planning agreements, a research charity has said.

“The Joseph Rowntree Foundation has today published a report, which finds that changes to the planning system have made it more difficult for planning agreements to ensure homes are built for those on the lowest incomes.

“The charity argues that the National Planning Policy Framework (NPPF), introduced by the coalition government, has led to negative impacts, including a greater emphasis on viability assessments, giving developers more ability to renegotiate agreements if they can show they make the scheme unworkable.

“JRF is calling for the introduction of viability assessment guidelines, which would set parameters for building costs and land values and allow councils to extract an amount from the rise in land value resulting from the granting of planning permission.

“It is also calling for the NPPF definition of affordability to be changed so it is aligned with households’ ability to pay.”

Advertisements

Fifth Capital scheme is over valued

Analysis of the values put on their flats compared to local comparables show that Fifth Capital may have seriously over valued their scheme, to the point that it is not viable.

In their Viability Report, Fifth Capital follow standard procedure by calculating  the value of their flats by comparing them with others on the local market; ‘comparable valuation’. But just how comparable to Stokes Croft are these properties?  (Note that Fifth Capital’s one bed flats will be 500-600 sq ft)

finzelsreachFinzels Reach

Dockside development on the old Courage brewery site. “The height of contemporary living” with “views overlooking the Floating Harbour and Castle Park”. 1 bed flats for c.£175,000 – £225,000.

horizonandeclipseHorizon and Eclipse

In the towerblock at Cabot Circus above Harvey Nicks. “Some of the most desirable flats in Bristol city centre” 1 bed flats for £177,000 to £199,000.

invictaInvicta

“The location of these new apartments in Bristol is as stunning as the building, facing the Millennium Promenade and overlooking the Floating Harbour and Porto Quay.” 1 bed apartments for £160,000 to £190,000.

The Viability Report accepts that all of these are far superior to the Carriageworks site. So they also consider some properties in the local area for better comparables. Of those, five are one bed flats.

armidaleArmidale Place

Redevelopment of the old White Tree Garage site.  They quote a 1 bed flat (657 sq ft) for £227,000.  But look at Rightmove and you’ll see most go for £138,000 to £150,000 (485 sq ft). And that’s with secure basement parking.

pictonstreetPicton Street

Flat 1 at Number 50. Cited as a one bed flat at £217,500 but check Zoopla and it describes it as a 2 bed flat. Oops.  Rightmove shows 47a, a genuine one bed flat, for £136,000.

Others

The other three one bed flats listed are up in Kingsdown or Cotham where you obviously get a bit of a premium over grungy living at bottom of hill.

The Council’s assessment of the viability appraisal

As is normal practice the Council asked their own consultants, in this case BNP Parisbas, to assess the validity of the viability appraisal.  They thought that the best comparable is other new build (the newness, the hype of a new development and the substantial marketing budget will always give a boost to values). Consequently they could expect Armidale Place to have lower values than a new build.  They only found one comparable new build.

prospectcourtProspect Court, Kingsdown

“Prospect Court is a stylish purpose built development of just nine, 2 and 3 bedroom, apartments arranged over three floors designed to blend with the existing period properties. Located in a prime elevated position”.  There are no one bed flats but two beds (c720 sq ft) have sold for c.£245,000 (Fifth Capital’s are being valued at £250,000).  But this is a small quite exclusive development and, as the sales blurb says, it’s up the hill!

catherinecourtCatherine Court, Picton St

We’ll throw this one into the pot as it’s just across the road.  Built in the 1990s, it’s a gated community with parking. Units are being sold for £205,000 (2 bed flat with courtyard parking) to £265,000 (house with internal garage).

In conclusion

So, in light of the comparable evidence, it is a bit surprising that Fifth Capital conclude (and BNP Parisbas confirm) that their one bed flats will be worth £215,000 (students of Estate Management and Valuation would probably be marked down for failing to take proper account of the comparables!).

If the value was put at £150,000 (still outrageous, but there you are) it would result in a reduction in the total sale values of the 59 one bed flats of £3.8m.  A similar reduction for the two and three bed units (we haven’t the time to do that analysis but we’d guess they may also be over valued) would wipe out all profit on the scheme and, we suspect, make it a non-starter.  That doesn’t help a case for more affordable housing, but it does suggest that something else is going on in the figures that is not fully disclosed in the viability report.

Unredacted viability study released

The unredacted reports have been released – here they are:

Economic Viability Appraisal Report

Viability Review

Also on the Council’s website

Headlines

Commercial units.

Rent = £10psf (£107psm) per annum for a shell unit (so services, rates etc will all be additional).  “The values attached to these units reflect the likely tenants of the accomodation, being local occupiers”.  Really affordable for locals?  By comparison Co-Exist charge £12-14psf for Enterprise Space and £10-12psf for artist studios, but that’s inclusive of all services.  Meanwhile the old Princes Trust unit on Stokes Croft (4,815sq ft on 3 floors) is on the market at £5.20psf and another recently refurbished 547sqft unit on Stokes Croft is on the market for £8.20psf. However, 32 Stokes Croft is on the market at £13.50psf.

Freehold of the commercial units will be sold to an investor for £900,000.  YP=8%.

Residential Units.

  • 1 x bed flat = £215,000.
  • 2 x bed flat = £250,000.
  • 3 x bed flat = £300,000.
  • 3 x bed house = £375,000.
  • Affordable units (which comprise all the units in the Carriageworks building) will be shared ownership with 40% sold to the occupier and 60% to a RSL.  So the three 2 bed duplex units, which each have a value of £265,000, would be bought on shared ownership for £66,000.

Freehold of the residential units will be sold to an investor for £500,000 (ground rent of £300/unit with 6% YP).

Development costs

Construction cost of all types of unit = £158psf (£1700sqm).

Costs are based on the fourth quarter 2014 but Fifth Capital won’t be on site until third quarter 2015 at the earliest; this could add 4-5% to costs (BCIS estimate). This inflationary increase will have to be covered either from the developer’s profit, the contingency fund or by an increase in sale values.

Costs assume that works will be procured by a national housebuilder – which Fifth Capital is not!

Development cost (construction cost + fees + marketing + agents + legals + finance) = £24m or £213psf (£2,300psm)

The difference between net and gross floor areas is 26%.

There is no allowance for the cost of archaeological works, works in relation to flora and fauna, bats, pvs, artwork, any works to adjoining properties (e.g. underpinning), Japanese knot weed, asbestos etc.  The assumption must be that these will be picked up by the 5% contingency fund or from the developer’s profit.

Developer’s Profit

£5,750,000 (19% of gross development value).

Land Value

£1.4m.  The benchmark landvalue used to justify this land value is Huller House & Cheese Warehouse.  This is a Victorian and early 20th Century warehouse block fronting the harbour in Redcliffe – some of the most expensive real estate in Bristol. Questionable if that’s a good comparable.

Total cost

Total cost of development (£29.5m) equates to £2,800psm (assuming 10,430 sqm gross area developed).

Viability Appraisal released but redacted

Viability Appraisals are a key document for proving whether or not a developer can afford to provide social housing.  Historically this has been considered a commercially sensitive document which even the members of the planning committee won’t see, although this view is starting to change and increasingly the appraisals are being released to the public. So, knowing its importance for the Carriageworks, we put in a Freedom of Information request back in early February, and yesterday the document was released.

The Viability Appraisal has been prepared by Upside London, specialists in advising developers on affordable housing.

Unfortunately both the Appraisal and the assessment of the appraisal, which the Council commissioned from BNP Parisbas, have been heavily redacted. So we can see the framework of the appraisal but not the actual numbers used.

It’s worth noting though that a recent decision by the General Regulatory Chamber, which hears appeals against the decisions of the Information Commissioner, has cast doubt on whether developers and Councils can withhold any of the information in a viability appraisal.  They concluded “We find it particularly hard to accept that the pricing and other assumptions embedded in a viability appraisal are none of the public’s business. They are the central facts determining the difference between viability and non-viability. Public understanding of the issues fails at the starting line if such information is concealed, and discussion of the “point in time” nature of viability models is frustrated.”  CAG would obviously like the redacted information released before the Planning Committee makes its decision on 8th April.

Here are the two documents:

VIABILITY_APPRAISAL (7Mb PDF)

VIABILITY_APPRAISAL_ASSESSMENT (8.5Mb PDF)

If anyone can help fill in the missing numbers we’d love to hear from you 🙂 ideas@carriageworks.org.uk