The planning system has always required local plans to balance competing objectives – housing need, infrastructure, and environmental improvements – whilst ensuring development remains deliverable.
Policy PM12 of the NPPF brings the financial side of that balancing exercise into much sharper focus by shifting the consideration of affordable housing and infrastructure to the local plan stage, rather than sorting out at the planning application stage.
From now on, the viability assumptions built into the local plan will influence development and investment decisions across the whole authority area for the next 10–15 years.
In other words, strong market-facing viability evidence at the plan-making stage is now a must-have, not a nice-to-have. No longer can the focus simply be on securing or protecting a site allocation, whilst believing that any viability issues can be sorted out when a planning application is lodged.
A housebuilder buying land in five or ten years’ time will inherit a financial framework for planning decisions established through today’s local plan. If a policy is unviable now, it will still be unviable in 10 years’ time.
PPG stresses the role of developers in engaging, and the sector needs to ensure that unviable policies do not slip through local plan examinations.
WHY LOCAL PLAN VIABILITY EVIDENCE NOW MATTERS
LPAs inevitably have to make assumptions when undertaking whole-plan viability work.
These include sales values and rates of sale, construction costs, finance, professional fees, contingencies, abnormal costs, developer returns, affordable housing values and benchmark land values.
Small differences in assumptions can become significant when applied across every allocation and windfall site.
This is why evidence from organisations actually operating in the local land and development market is crucial.
The viability evidence must strike the right balance – securing affordable housing and infrastructure whilst maintaining the commercial incentives for landowners to sell and housebuilders to build.
TEMPORARY VS PERMANENT?
Government has also recently asked the Planning Inspectorate to take a pragmatic and proportionate approach to viability and deliverability, looking across the whole plan period rather than treating current economic conditions as permanent.
Code for: “Get your local plans adopted rather than over-worrying about viability.”
That means some LPAs will be tempted to view unviable wish-list sites as being OK for allocation. Or to regard unviable assumptions in the evidence base, leading to undeliverable affordable housing policies, as just a temporary issue which should not hold up plan adoption.
Inspectors will need to distinguish between short-term market movements and structural changes in development economics. Developers and landowners will have a key role in influencing that.
Construction costs, regulation, finance costs, infrastructure demands and market conditions have all changed significantly in recent years.
The question is which of those changes are temporary and which are here to stay. A flawed judgement, adopted today, will affect planning decisions and land transactions for many years.
The policy direction is clear: establish the financial framework through plan-making so that it can compliant development which can then proceed with greater certainty and less reliance on application-stage viability negotiations. Done properly, that could reduce friction later. Done badly, it will stall planning applications for many years.
TYPOLOGIES AND STRATEGIC SITES
For most development, LPAs will use site typologies to determine affordable housing requirements, based on factors such as size, location, greenfield/brownfield status and development characteristics.
Those typologies need to reflect the range of sites likely to contribute to housing delivery and then be tested using realistic assumptions.
Large strategic sites will be subject to a different approach, where viability will depend heavily on site-specific assumptions on phasing, infrastructure timing, abnormal costs, funding and sales rates.
The examination therefore needs to test two things: whether the typologies are genuinely representative, and whether the strategic allocations can deliver the housing and infrastructure expected of them in the timescales envisaged.
CONSISTENCY AND STANDARDISATION
The Government is to be applauded for striving for more consistency and standardisation in viability assessment. Common definitions, methodologies and reporting formats can improve transparency and make different assessments easier to understand.
But consistency of methodology does not mean uniformity of inputs. England contains very different housing and land markets. Values, build costs, infrastructure requirements, sales rates and landowner expectations vary considerably.
The objective should therefore be a consistent methodology using robust, locally evidenced assumptions.
GREATER NEED FOR COORDINATED MARKET EVIDENCE
It is unrealistic to expect every housebuilder or landowner to participate fully in every local plan examination. Therefore, the sector needs better coordinated market evidence between housebuilders, developers, promoters and landowners. A single body of strong, properly researched evidence will be more useful to an inspector than numerous representations making similar points without the analysis to back them up.
Given the scale of increased regulatory costs, this means landowners and housebuilders working together to ensure that land transactions will go ahead, rather than housebuilders sitting back and assuming that additional costs will simply come off the land value. The aim now is to secure local plan policies which will incentivise landowners to sell and builders to build.
GETTING THINGS RIGHT AT THE OUTSET
Moving the development economics upstream into the local plan process should create greater certainty for authorities, communities and developers. But that certainty is only useful if the applied assumptions are sound.
For housebuilders, landowners and land promoters, local plan viability can no longer be treated as somebody else’s issue until a particular site comes forward. If the assumptions are wrong at the outset, the consequences will last for the whole plan period.
