Development Viability Challenges
Housing development is currently a challenge, as our Development Consultancy team explain, with development viability challenges causing issues.
House buyers’ confidence has been damaged by the turmoil in global and UK politics leading to insecurity and increased interest rates. Whilst rates have declined recently, and house sales rates are beginning to increase, current sale programmes are slow and elongated. Buyers’ confidence remains fragile.
Possibly the biggest challenge remains the increase in build costs. This increase is partly due to inflation, a result of the volatility and distortions created by Trump and Putin and partly increased regulation and build standards. Build costs have increased by around 2.8% in the past 12 months much of which is labour costs which rose by 7.1% reflecting the increase in the minimum wage and National Insurance contributions. A further concern is the BCIS prediction that build costs will increase by a further 14% between now and 2030.
The cost of compliance with development plan policy has also increased significantly in the past 5 years. This flows from an increase in the number of policies related to a residential development which must be complied with in order to achieve planning consent, and inflation in the cost of compliance, not least the increased build cost and cross subsidy needed to build affordable housing. Other issues include the need to improve infrastructure especially utilities which have been poorly maintained in recent years in addition to the general CIL payment.
Professional fees have also increased due in no small part to the increased due diligence required by planning authorities the cost of which has to be met by the developer. It is not only the actual cost of the works, but it is the delay which when combined with a delay in the sales programme slows the whole development process and therefore provides for increased costs of borrowing.
The increased costs development has now yet been balanced by a reduction in residual land values and consequently development margins are being squeezed.
Our Development Services team have seen a significant increase in developers seeking help to challenge Plan policy compliance on the basis of a schemes lack of financial viability, as set out in the National Planning Policy Framework 2018, and explained in a previous newsletter article Financial Viability Assessments as Part of the Planning Process – Vickery Holman.
Planning authorities are also reviewing their policies in the light last year’s NPPF which, introduced a dramatic increase in house building required by the government, against their wider policy goals. Can they achieve that number of houses under current policies?
Can the industry deliver the number of houses required at a price that’s affordable to the market and help with the communities’ wider ambitions?
Yes, we can but it’s a challenge and some compromise is needed with land owners, LPA’s and house builders.
