Part 3 – Industry veteran Philip Barnes returns to propviews and considers the issues raised by the new Draft London Plan around green belt treatment, local plan adoption and the new Draft’s own evidence identifying its housing policies are not viable from the outset
For over 50 years planning policy in London has existed in happy isolation from the rest of the country. Green Belt and Metropolitan Open Land policies meant London had “no capacity” to extend its built footprint onto greenfield land to provide the homes to needed for population growth. This urban strangulation effect, compared to some other popular cities, is laid bare in the table below with London being the only example where percentage population growth has exceeded the growth of the built-up footprint. The comparison with Paris perhaps being particularly stark.
But then came Grey Belt and the need for London planners to behave like the rest of the LPAs in the UK. Namely following the step-by-step approach in NPPF, namely, (i) define the housing need (Standard Method), (ii) define the brownfield housing capacity, (iii) define the residual greenfield housing requirement, (iv) identify the greenfield sites to be released to meet need, and (v) design viability policies, in accordance with national guidance, which ensure housing need will be met within the plan period.
Unfortunately, it does not currently seem clear that the Draft London Plan (DLP) has followed this approach. Thereby raising the following questions to be considered in this post.
- What do the Draft London Plan and the NPPG Methodology say about EUV and incentivising landowners?
- What are the key issues for PINS when considering the Draft London Plan.
- What precedent could the London Plan set?
- Is the Draft London Plan actually deliverable?
What do the Draft London Plan and the NPPG Methodology say about EUV and incentivising landowners?
NPPG is clear that the BLV, for viability appraisal purposes, should be based on Existing Use Value (EUV) plus a premium (EUV+). That premium should be sufficient to provide a reasonable incentive for the landowner to release land while allowing for full compliance with planning policy. There is no hope value to be applied but, equally, there is a recognition that incentivising landowners to sell requires a significant premium over the existing agricultural value. Fundamental to that approach is the need to define the BLV and then apply it as an input within the viability assessment model. Thereby testing whether policy-compliant development can support the BLV, when tested against assumptions on sales values, build costs, finance costs, infrastructure, planning obligations, and competitive developer returns.
The DLP turns that NPPG methodology upside down. The starting point land value for modelling purposes is not BLV, but the existing agricultural land value, with zero premium. This goes far further then the now infamous 2017 London SPG which squeezed EUV+ to an inch of its life. There is now no premium at all!
The costs and profit, for a policy compliant scheme, including the Golden Rules, are then subtracted from the modelled Gross Development Value (GDV) to define a residual land value (RLV). That RLV, is the amount allowable to the landowner, in the viability assessment. In effect the BLV is now an output of the viability modelling. If it happens to be similar to agricultural value, the plan boldly assumes that the landowner will be happy to sell on that modelled basis. A huge conceptual shift from,“can a policy compliant scheme support a reasonable landowner incentive?” to, “what landowner incentive remains after policy requirements have been met?”
If no incentive exists, then the plan assumes that the land will be CPO’d, at zero premium over agricultural value. Albeit no discussion on either (a) the capacity within LPAs to undertake CPO’s or (b) the prospects of success with no landowner premium.
What are the key issues for PINS when considering the Draft London Plan?
No doubt those who designed the new approach will argue that planning policy must be reflected in land values and that landowners should not be eligible for any development value. They may also argue that the incentive problem is purely theoretical as the sales values in London are such that there will always be a significant RLV for greenfield landowners in London. However, that doesn’t seem to be the case as seen below.
The public examination will need to address three fundamental and potentially difficult questions:
- What is the justification for such a clear conflict with the approach within NPPG?
- Given the economics of housebuilding in London at the moment, will there actually be a significant RLV? The 4,170 starts across all 32 London boroughs in the last year represents 4-5% of assessed need in Standard Method and is lower than the 4,776 completions in the City of Manchester borough alone.
- Is it realistic to base policy on the assumption that (a) CPO’s will succeed with no landowner premium and/or (b) that deliverinbg the plan will require major public subsidy. (See below)
One matter which has added complexity is the letter from Matthew Pennycook MP to The Planning Inspectorate (PINS) on 15th July. It stated that LPAs should take an “appropriately pragmatic and proportionate approach and not to consider the viability and deliverability of a site solely against today’s viability position”. A clear message that LPAs can put forward currently unviable sites without fear of PINS rejecting them, and without any requirements for LPAs to either (a) show evidence as to why unviable sites will become viable or (b) to test the viability of individual sites.
What Precedent could the London Plan set?
The risk of the DLP being signed off by PINS and adopted after Public Examination has increased since the Pennycook letter. However, its future adoption, as it stands, perhaps seems unlikely given the scale of conflict with national guidance. In event of adoption, the implications for housing delivery beyond London could be seismic.
Any LPA which is reluctant to release greenfield land will immediately reconstruct their local plan viability study to reflect the GLA approach. Thereby calling into question the delivery of many thousands of homes. The GLA is saying that they only have capacity for 56,100 homes on greenfield land, despite (a) the local plan undershooting the housing requirements in the Standard Method by 324,000 homes (880k vs 558k) and (b) the obvious evidence of many 000’s of hectares of farmland, paddocks and golf courses in the GLA area, which could be classified as Grey Belt.
If the London Plan is adopted as proposed, there will likely be a rush of LPAs reworking viability and Green Belt studies with a view to slashing housing targets and greenfield releases. What’s good for the goose etc.
Is the Draft London Plan actually deliverable?
As always, it boils down to soundness. Notwithstanding the Pennycook letter, the DLP plan will only survive examination if it is effective – namely proving that, on the whole, the allocations will be built out. Whilst that can only be determined precisely after the release sites have been precisely defined at local plan stage, PINS will nevertheless need to come to view as to how likely is it that those future sites, yet to be defined, will be delivered. Not easy when a key assumption appears to be that, if necessary, sites will be acquired by CPO at agricultural value.
Moreover, as other contributors to Propviews have demonstrated in this series, the DLP is predicated on the assumption that gap-funding by the public sector will be required and will be delivered. An assumption without precedent during my 40 years of watching the preparation of local plans.
Even the GLA’s own evidence, testing 989 different development scenarios, revealed that only 23% were viable when applying the GLA’s cost and revenue assumptions. If more market-facing cost/revenue assumptions are applied which, (a) reflect current market conditions, and (b) are less optimistic about the scale and speed of market rebound, the 23% figure drops significantly. Watch out for more on this on propviews over the coming weeks as the analysis goes deeper into the numbers.
Conclusion
This is perhaps the first ever planning document which deliberately promulgates the possibility of (a) allocating land for housing which may not generate a land value above EUV and (b) which seems wholly reliant upon public sector gap funding. Significant implications flow from that:
- Where is the evidence that landowners will sell at that level, or that CPO can overcome the problem if not?
- What would be the implications for other LPAs if this plan (a) accepts the principle of Green Belt releases but massively undershoots housing requirements despite having 000’s of hectares of developable Grey Belt land?
How will other LPAs react if it is deemed OK, after examination, to deploy an approach to assessing the viability of greenfield sites which appears to be at odds with NPPG guidance?
