governance mechanism, the policy tools have also shifted responding to this change this has placed viability and deliverability at the centre of planning policy and
planning tools such as CIL. There are several implications that emerge from this, the
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nature of the assessment of the viability, the allocation amongst the actors involved and the governance of that process, these are now considered.
3.6.1 The preparation of Viability Assessments
There was significant discussion in the last chapter about the detail of the viability assessment process and the guidance that is available to support that process. As both the CIL policy and the Viability Testing of Local Plans are relatively recent policies requiring area wide viability assessments relatively little research has been undertaken in relation to this process. It is important to make the distinction between area wide viability assessments and viability assessments for Planning Obligations on a specific site which have been researched (Claydon and Smith, 1997; Campbell and Henneberry, 2005; Burgess and Monk, 2016; Dunning et al., 2016) and which reflect the increasing shift towards a negotiation role for planners within an increasing need to consider viability and deliverability of development proposals. However, whilst the negotiation of Planning Obligations can often be relatively obscure and influenced by the knowledge and skills of the actors involved, the opening up of the area wide viability assessment required in the CIL policy may have significant impact on both the decision making process and the governance arrangements.
There are some key points however that can be learned from the implementation of Planning Obligations and which are likely to be influential on the implementation of CIL. Important areas of practice and skills were in relation to planners having knowledge of viability issues and understanding of development economics, which have been identified several times over the years and have become even more
critical since the financial crisis in 2008 (Dunning et al., 2016). It is also apparent that the evidence of delivery of Planning Obligations across the country has been very varied. Whilst these variations did partially reflect the strength of economic and market conditions, this didn’t fully explain the variations, and raised the importance of dissemination of best practice, improving skills and even changing cultures as critical (Dunning et al., 2016). To assist this process Dunning et al. (2016) have set out a model to illustrate this see figure 3.4. This shows the position of an organisation in terms of its performance, with ideally seeking to move local authorities into box (b) from the other boxes.
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The increasingly important role of development viability appraisals (DVA) in
supporting planning policy proposals has been investigated by McAllister et al (2015) both in how they support CIL rates and as evidence to support the deliverability of Local Plan proposals. They consider the DVA as a “calculative practice”, and suggest that the DVA itself presents a position of objectivity and precision, which in reality is not possible and which obscures the fact that the models inputs and outputs are socially constructed (McAllister et al., 2015).
Policy
Figure 3.4 Transitions in policy and practice (Dunning et al., 2016)
McAllister et al. (2015) also suggest that this use of DVA and their numeric nature perhaps offer a common ground for trust and negotiation based on (Porter, 1995), but that more likely drawing from (Christophers, 2014) that the DVA is performative in nature. Christophers (2014) in his consideration of the Three Dragons appraisal model suggests that the nature of the model is such that it shifts from being an analytical tool to becoming one of determining and influence the performance of the decision making process, with human actors simply feeding in data into the model.
These standard models it is argued also help embed certain standard assumptions such as the profit level of 20% of GDV for developers.
Denis et al. (2006) make the point that numbers and quantification can in itself exert power and McAllister et al (2015) point out that the “Black boxing” of the detailed calculations in the DVA can also exclude actors from the process who don’t have the skills to interpret the figures. They go on to say that the DVA is a vehicle to make the
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complex process more governable (McAllister et al., 2015), which will now be considered further.
3.6.2 Development Appraisals Spatial and Temporal Issues
It is important to acknowledge that the developer’s decision to develop has two parts, the market assessment, is there demand for the end product and secondly the
financial appraisal, can the scheme be delivered and make a profit to compensate for the risk involved, a development appraisal includes data from both parts
(Henneberry, 2016).
As discussed above the Viability Assessment element of the CIL, comprises a series of hypothetical development viability appraisals (DVA) on a range of sites, each based on the residual method of valuation which doesn’t deal with time particularly well, for three reasons. Firstly, residual valuations use current values and costs to calculate the current residual land value, no attempt is made to forecast into the future. Secondly, the assumptions on costs don’t always adequately reflect their true cost over time. Finally, value is usually back loaded to the end of the development process (Wyatt 2007). Cash flow models can address this, but the simplistic residual valuations used in CIL hypothetical DVAs as part of the Viability Assessment process tend not to.
In a critique of appraisals in practice it is argued that the assessment of project performance should be separated from the financial decision (Henneberry, 2016).
The developers return as a lump sum profit is not very realistic, the assumption of the financing and funding all being debt is also unrealistic in practice, yet these are the basis for the residual valuations in the DVAs.
The complexity of the appraisal valuations are such that the impact of some variables is much greater than others on the overall outcome. The impact of land value if fixed at the beginning in the model will be very high, in fact the whole issue of front and back loading of various elements in the appraisal is influential, which is also effected by the discount rate assumption (Henneberry, 2016). In addition to the above
temporal issues connected to the mechanics of the valuation and appraisal there is also the effect of the property market changes and delays on the construction process.
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Moving on to spatial effects, costs and values vary geographically and this is one of the major challenges faced by CIL is how to map these differences. The CIL viability assessment by using a simplified appraisal system, to deal with the averaging across a range of hypothetical sites, cannot reflect the heterogeneity of development
conditions across different specific sites. Accordingly CIL rates will therefore tend to be set conservatively, to ensure viability of sites with higher development costs, this in turn will mean that CIL will impact less on high value schemes.
Finally, related to the above, the big issue is the separation of cost and value, the use of a cost based charge, to raise revenue, as constrained by a viability test
(Henneberry, 2016). This separation of cost and value in the assessment process is at the heart of the problem with the CIL viability assessment process, reflecting once again some of the problems from earlier value capture mechanisms.
3.6.3 The Governance of the Viability Assessment Process
The governance of the DVA process was also considered by McAllister et al (2015) and three main points emerged, firstly, the relative lack of oversight of or regulation of the DVA process, with little codified guidance, which as discussed in the last chapter is often contradictory. The rules of the process are not codified and much of this is controlled by specialist consultants. Which leads on to the second point that there is the governance of the client and consultant relationship to be considered.
Finally, the importance of consultation and collaboration within the appraisal process to ensure robustness. This comprised two elements, the contribution of local
knowledge, which can be considered to be the comparable evidence to support the appraisal and secondly
“the inclusion of a range of stakeholders, often with conflicting interests, highlighted the intrinsic uncertainties associated with the assumptions of the modelling process. This served a legitimisation function, neutralising
opposition and increasing stakeholder buy-in to the process. However, the consultation process was essentially limited to experts and lay participation was absent”. (McAllister et al., 2015, p. 15)
The emerging issues from this research are, the limited guidance provided by national government on how to undertake the viability assessment process has
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meant due to a lack of capacity, skills or confidence, to local authority planners relying on the appointment of consultants. In addition, the relative absence of any governance by national government to define best practice has meant this has been provided by other institutions and by specialist consultants. This accordingly raises the importance of the local authority planners as client’s relationships with specialist consultants. Finally, the consultation and collaboration with local stakeholders again is a key influence on the viability assessment process. Not just because of the increasing emphasis placed on this is national guidance from 2012, up to the NPPG in 2014, but also because of the need to secure evidence and to secure agreement within an uncertain process from key stakeholders and partners. However, this is a rather limited group of actors with many stakeholders excluded due to not having the specialist knowledge to engage. These are all key elements that were considered within the research.