What is a Viability Assessment, and do you need one?
A Viability Assessment is the process of determining if a potential development site is financially viable by evaluating whether the value it generates exceeds its development costs. This means we take a close look at the key elements of your proposal, such as gross development value, development costs, planning obligations, land value, landowner premium, and developer return.
The National Planning Guidance sets out the government's recommended approach to planning viability assessments. This approach supports community accountability by enabling local stakeholders to understand the key inputs and outcomes of a viability assessment. At The Roscoe Group, we ensure every viability assessment is informed by appropriate evidence, follows the government's recommended approach, and is proportionate, simple, transparent, and publicly available.
In planning and decision-making, viability helps strike a vital balance. It weighs the aspirations of developers and landowners regarding returns relative to risk against the aims of the planning system to secure maximum benefits in the public interest through the granting of planning permission.
Understanding the Methodology
Financial Viability Assessments are used to analyse and justify the level of affordable housing or planning obligations a scheme can realistically sustain without making that scheme unviable.
The methodology underpinning a residual land valuation is a relatively simple concept.
Firstly, we assess the Gross Development Value (GDV) of your proposed scheme.
Secondly, we deduct the costs of delivering the scheme, as well as professional fees, financing costs, and your developer's profit.
These costs are deducted from the GDV, leaving us with a Residual Land Value.
We then compare this Residual Land Value to an appropriate Benchmark Land Value. If the Residual Land Value is lower than, or not sufficiently higher than, the Benchmark Land Value, the project is considered technically unviable and unlikely to proceed.
The Key Ingredients of an Assessment
Gross Development Value
Gross Development Value (GDV) is an assessment of the value of the proposed development. This is usually your total sales or capitalised rental income. Grant funding and any other external sources of income can also be considered here. In our assessments, we typically use market evidence that accounts for location, scale, specification, and form to determine the GDV of a proposed scheme.
Development Costs
A viability assessment should include accurate, realistic costs that reflect current market conditions. Typically, we would insist that a fully itemised build cost plan is prepared to inform the Development Appraisal. Other essential costs we consider include:
Abnormal costs, such as contamination or asbestos removal
Site-specific infrastructure costs, which might include substations, access roads and connection to utilities
Planning obligations such as the Community Infrastructure Levy (CIL) and biodiversity net gain
Professional, project management, sales, marketing, and legal costs
Benchmark Land Value
To define land value for the purposes of a viability assessment, we establish a Benchmark Land Value based on the land's existing use value, plus a suitable premium for the landowner. This premium should reflect the minimum return at which a reasonable landowner would be willing to sell their land, providing them with a reasonable incentive to do so.
The Financial Viability Assessment Process
All the information and conclusions we gather are set out in a report submitted to the Local Planning Authority alongside your Planning Application. The council will typically appoint an external independent assessor to prepare a review of our submitted viability assessment and test the assumptions we have adopted. The assumptions will then be negotiated between the consultants to arrive at an agreed appraisal.
Why You Need a Viability Assessment for a Deliverable Scheme
In the current market, with risks around political uncertainty, financial markets, and construction costs, delivering a policy-compliant scheme is unlikely to be viable. Viability testing a proposed scheme and going through a negotiated process to reach an agreed appraisal are the most reliable ways to ensure your proposed schemes remain deliverable whilst meeting the Local Planning Authorities' aspirations.
The Agreed Appraisal
In Roscoe Group’s opinion, this is the most important piece of the puzzle because this appraisal informs the S106 Agreement. Following the negotiation period, if a proposed scheme is not policy-compliant, the Local Planning Authority will likely insist on an early- and late-stage review mechanism. Fixing the inputs to these mechanisms, such as Application Stage GDV or Application Stage Build Costs, is an essential element in protecting you as the developer and minimising the variables that can be tested on the review dates.
Need help navigating your next Viability Assessment?
At The Roscoe Group, we specialise in delivering robust Financial Viability Assessments and negotiating the best possible terms for developers across London and the South East. Contact our team today to ensure your next scheme remains deliverable, profitable, and policy compliant.
