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Viability Decisions – Care Needed on ‘Market Value’ Assumptions

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The recent Parkhurst Road appeal decision emphasises the importance of understanding how  land value expectation (and so the price for land) should reflect planning policy requirements.

The appeal decision dismissed the 96-home proposals for the disused Territorial Army centre on Parkhurst Road, Holloway on the grounds that it would not provide the “maximum reasonable” level of affordable housing, as required by the council’s core strategy. The appellants offered ten per cent affordable provision, reflecting a purchase price of £13.25 million (which, in light of nearby sales data, was said to be the market value for the site). The Inspector accepted the authority’s approach, starting with the site’s established use value (EUV) and applying a significant premium, to reach an overall benchmark nearly half that put forward (at which 34% provision was feasible).

Caution is needed on whether the decision is really a game-changer or just a reminder of home truths.

Benchmark, not Landmark

The decision is a benchmark, of existing policy, rather than a landmark in terms of a new approach. It shows a willingness to take policy and guidance at its word and treat land value as genuinely residual to policy requirements (even where they are expressed to be ‘subject to viability’).  It does not junk the comparable approach, nor does it undermine the use of either a substantial premium to Existing Use Value  (EUV Plus) or use of Alternative Use Value where appropriate to reflect the need for an incentive to release land.  It is a reminder of the need to critically examine evidence of comparable values to weed out those which failed to comply with policy in the first place (i.e. are not truly comparable).

It also illustrates the role that the Mayor’s Housing Supplementary Planning Guidance (March 2016) will play in London in clarifying that the outcome should rarely be different whether either the EUV Plus or the RICS market value basis is used properly.

Context is everything

The backdrop to this particular decision also matters. In a previous (2015) appeal, the Inspector’s finding that the price paid was broadly reasonable in light of ‘market signals’ (competing bids and comparables) resulted in a letter from the Government responding to the threat of legal proceedings by Islington acknowledging that the PPG’sunambiguous policy position” is “in all cases land or site value … should reflect policy requirements and planning obligations…”.

The 2017 decision adopts a more critical approach to giving effect to that, but is not really that different to other appeal decisions through the years which reflect the same fundamental point already flagged in the PPG (look back, for example, at the 2013 Holsworthy Showground decision) discounting price paid as an overbid against true market value.

Technical Pointers

Both the 2015 and 2017 decisions acknowledge the appropriateness of a viability Review. A 24 month ‘grace period’ was acceptable to avoid a pre-implementation Review but seeking a 22% margin at the Review stage when the effective profit on the 10% AFH offered at appeal was 18% was – sensibly – rejected on the basis that the development risk is already rewarded by the preserved return of 18%.

It is also significant that a requirement not to leave the homes empty for more than 3 months (under its adopted Preventing Wasted Housing Supply SPD, July 2015) was rejected on the basis of doubts about both the justification for, and the enforceability of, the obligation. The latter point should be scrutinised as a proper consideration in judging the reasonableness of the obligation – not least because it would suggest that the kind of obligations required by the St Ives Neighbourhood Plan could never be given effect.