For those yet to respond the viability reforms in the NPPF – you can find it here:
The email is here:
PlanningPolicyConsultation@communities.gov.uk
Our response which you might find interesting is here:
1. Overall Position
At the outset, it is important to recognise that the viability framework plays a fundamental role in how the housing development market functions. The interaction between investment capital, land supply and development risk ultimately determines whether sites come forward for development.
Three related factors are particularly relevant.
First, capital is mobile. Residential development competes with other sectors and asset classes for investment. If planning policy artificially constrains returns or introduces significant uncertainty into the development process, institutional capital and development finance will simply move elsewhere. Capital will not remain within residential development if policy prevents investors from achieving risk-adjusted returns. This is evident from the Greater London area which is now suffering from decapitalisation following a combination of macro economic events, poor regulatory interventions and complex viability planning rules.
Second, land supply is sensitive to landowner expectations. If benchmark land value assumptions significantly depress site value, landowners will choose not to sell. This reduces the supply of developable land entering the planning system.
Third, increasingly complex and rigid viability systems disproportionately affect SME housebuilders, who lack the financial capacity to absorb prolonged negotiations, planning delays or uncertain viability outcomes.
Taken together, these factors determine whether development comes forward at all. A viability framework that fails to recognise these market dynamics risks reducing housing supply rather than increasing it as has happened via the London Plan’s viability framework.
While the Government’s intention to simplify the viability process is understandable, the approach proposed through Policies PM12 and DM5 risks introducing an overly rigid framework that fails to reflect how development viability actually operates.
Development viability is inherently dynamic, site-specific and highly sensitive to economic conditions. Construction costs, finance costs, housing market demand and infrastructure requirements can all change significantly during the lifetime of a Local Plan.
Attempting to lock viability assumptions at the plan-making stage using standardised national inputs risks undermining deliverability rather than supporting it.
Urban Sketch therefore considers that the viability framework introduced in 2019 should largely be retained rather than replaced with a more prescriptive system. Moreover, the Government must learn the lessons from the London housing collapse which are in part a consequence of onerous viability rule interventions.
2. Restricting Site-Specific Viability (Policy DM5)
Urban Sketch strongly objects to the proposed approach in draft Policy DM5, which seeks to significantly restrict the circumstances in which site-specific viability assessments can be used.
In practice, viability cannot be reliably forecast across the 5–15 year lifespan of a Local Plan. Markets move far faster than the planning system.
Recent experience illustrates this clearly, including:
- rapid construction cost inflation
- higher borrowing costs
- labour shortages
- supply chain disruption from macro events, Iran being just the latest.
- fluctuations in housing market demand due to poorly conceived taxes.
These factors fundamentally affect scheme viability. A rigid system that assumes plan-stage viability assumptions will remain valid over many years risks locking schemes into unrealistic assumptions.
Site-specific viability assessments therefore remain an essential safeguard within the planning system. Without this flexibility many schemes — particularly regeneration projects and complex brownfield sites — will simply not proceed.
3. Affordable Housing Floors
Urban Sketch strongly opposes the proposed introduction of a national affordable housing “floor”.
This proposal represents a one-size-fits-all approach that fails to recognise the significant variation in land values, development costs and market conditions across the country.
In lower value markets and regeneration areas, a mandatory floor could easily render schemes unviable. The likely outcome would not be increased affordable housing delivery, but fewer developments coming forward altogether.
Affordable housing policy must therefore remain responsive to local market conditions and site-specific viability evidence.
4. Standardised Viability Inputs
The proposal to introduce standardised inputs into viability assessments represents a significant oversimplification of development economics.
Development schemes vary widely depending on:
- site constraints
- infrastructure requirements
- planning status
- abnormal costs
- development scale and phasing
- local market strength
Attempting to standardise assumptions such as developer returns or benchmark land values across these diverse circumstances risks producing unrealistic viability outcomes and deterring investment.
Guidance ranges may assist transparency, but rigid national assumptions are unlikely to reflect the realities of development risk and local market conditions.
5. Developer Margins and Business Overheads
Urban Sketch has serious concerns regarding proposals to standardise developer margins.
Development risk varies substantially between sites. A fully serviced site with planning permission in a strong market is fundamentally different from a large brownfield regeneration project requiring major upfront infrastructure investment and considerable programme lead ins.
Fixing developer returns through national policy or local plan testing therefore risks misrepresenting development risk and discouraging investment.
A further concern is that the current approach to viability assessment often does not allow developers to properly account for corporate overhead costs. In many viability appraisals these costs are effectively excluded or assumed to be absorbed within the developer’s profit margin.
This is not reflective of how businesses actually operate. Developers must fund significant overheads including:
- staff and professional teams
- bid costs and planning promotion
- corporate finance and administration
- the cost of unsuccessful site promotions and failed planning applications
These are real costs of doing business, and any development return must cover them. Ignoring these costs artificially compresses the margin available to developers and risks presenting an unrealistic picture of development viability.
A development return that does not cover corporate overheads and unsuccessful bid costs is not a development return at all — it is simply a partial recovery of project costs.
This issue is particularly significant for SME housebuilders, who have less ability to spread overhead costs across large development portfolios.
Further attempts to constrain developer margins through national policy are therefore likely to discourage investment and reduce housing delivery, rather than increase it.
6. Benchmark Land Value, EUV-Based Models and SME Delivery
Urban Sketch is particularly concerned about the continued reliance on rigid EUV-based benchmark land value approaches.
The experience of London’s EUV+ viability model provides a clear warning. The introduction of a rigid EUV-based system was intended to simplify viability and increase affordable housing delivery. In practice, it has frequently resulted in:
- prolonged viability disputes
- stalled development proposals
- reduced land supply where landowners are unwilling to sell
Landowners will not release land where policy assumptions significantly undervalue it. If benchmark land values are set unrealistically low, land simply does not come forward for development.
The wider impacts of increasingly complex viability systems on smaller developers are also well evidenced. Research undertaken by Lichfields in 2020 examining small-site housing delivery in London found that viability and affordable housing negotiations were a principal barrier in approximately three-quarters of schemes analysed, with many developments delayed by disputes over land value assumptions and policy compliance.
The study also demonstrated that viability assessments on small sites were often as complex and contested as those required for major schemes, despite the much smaller margins involved.
In practice, this means viability policy can unintentionally exclude SMEs from the development process, further concentrating delivery among a small number of large developers.
7. Late Stage Reviews
Urban Sketch also has serious concerns regarding proposals to increase the use of later-stage viability reviews.
While review mechanisms may appear attractive in theory, they introduce significant uncertainty for developers and development funders.
In many cases the combined effect of review mechanisms, planning obligations and taxation means that a large proportion of any uplift in development value is captured by the state.
When aggregated, these mechanisms can effectively operate as amarginal tax rate exceeding 80%.
This creates a powerful disincentive to investment and undermines the commercial incentives required to bring forward development — particularly in marginal markets or complex regeneration sites.
8. Conclusion
Urban Sketch strongly urges Government to reconsider the proposed changes to viability policy.
The draft NPPF risks introducing a more rigid and less realistic viability framework than the system currently in place. While simplification is desirable, it must not come at the expense of deliverability.
A planning system that fails to reflect the realities of development economics will not deliver more homes.
Instead, national policy should:
- retain the current viability framework introduced in 2019
- maintain flexibility for site-specific viability assessments
- avoid rigid national assumptions on land value, developer returns or affordable housing provision
Without these safeguards, the proposed reforms risk reducing rather than increasing housing supply.
Kind regards
