Developing A Viable Community Infrastructure Levy Nationwide CIL

Developing A Viable Community Infrastructure Levy Nationwide CIL Service

Key Elements Infrastructure Assessment CIL Evidence Base CIL Viability Assessment CIL Regulation Compliance Charging Schedule setting out CIL Rates Nationwide CIL Service

Infrastructure Assessment • Establish the Infrastructure required to Support Growth • Determine the Infrastructure Projects desired to be funded by CIL and assess the Delivery Costs • Determine Alternative Funding Sources • Calculate the Infrastructure Funding Deficit • Confirm the Infrastructure List for Examination Nationwide CIL Service

Evidence Base – Statutory Guidance Key guidance contained within paras 20 -40 of the CIL Charge Setting and Charging Schedule Procedures March 2010. An area based approach – a broad test of viability across that area rather than rates being relevant to specific development sites Appropriate available evidence across the area as a whole – sampling of development sites will be appropriate but if a differential CIL system is desired more fine grained sampling will be required to justify the differential approach. – not fully comprehensive or exhaustive. Charging Authority should demonstrate that CIL rates are ‘informed by’ the evidence and consistent with it. No requirement for rates to mirror the evidence – there is room for pragmatism Nationwide CIL Service

Evidence Base – Statutory Guidance Charging Authorities should take account of regulatory requirements that impact on the cost of development eg Affordable Housing policy Authorities may consider changes to economic circumstances over the lifetime of a charging schedule (eg sensitivity testing) Authorities may rely on published data but may want to ensure CIL rates take account of current market conditions by sampling recent market transactions. Nationwide CIL Service

Evidence Base - Practicalities Undertake an area wide survey of land property values. Existing evidence may be used (eh SHLAA, AH Surveys, VOA Reports) but it should rely on consistent assumptions. Obtain evidence of construction costs, fee rates, statutory fees, warranties, contingency rates that is applicable to the local area If a differential rate CIL system is desired, the evidence base should be sufficiently comprehensive and detailed to justify different rates for different categories and locations of development. The valuation evidence should be sufficiently detailed to enable charging zone boundaries to be justified in a differential rate system Nationwide CIL Service

Evidence Base – Sub Markets Investigate potential variations in economic sub-markets for both residential and commercial property This is an overview to determine broad variations and potential CIL charging zones and may therefore rely on area wide evidence rather than the sort of market specific evidence required to justify development viability (eg VOA comparative data) Values within the chosen test areas (eg wards, parishes, post codes) will tend to group together to inform potential CIL Charging Zones. Residential C 3 Av House Price Ward A, B, E, F £ 170, 000 Ward C, D, G, £ 200, 000 Ward S, T, U, V, W, £ 240, 000 Ward H, I J, X, Y, Z £ 270, 000 Ward K, L, M, N, O, P, Q, R £ 320, 000 Nationwide CIL Service

Evidence Base – Land & Property Valuation Residential (C 3) - Land Values per Ha, Land Values per ‘house type’ plot based on relevant density assumptions Commercial - Land Values per Ha & Development Values : General Retail (A 1, A 2, A 3, A 4, A 5) Industrial (B 1 b, B 1 c, B 2, B 8) Hotels (C 1) Institutional and Community (D 1) Agricultural Residential Land Value (Ha) Sales Value (Sqm) Ward A, B, E, F Food Retail (A 1) Offices (B 1 a) Residential Institutions (C 2) Leisure (D 2) Sui Generis - sample based on planning history. Ward C, D, G, Ward S, T, U, V, Ward H, I J, X, Y, Z Ward K, L, M, N, O, P, Q, R £ 800, 000 £ 1, 100, 000 £ 1, 400, 000 £ 1, 700, 000 £ 2, 300, 000 £ 1800 £ 2000 £ 2300 £ 2500 £ 3, 000 Nationwide CIL Service

Fixed Rate or Differential Rates Fixed rates are simple to apply and administer Fixed rates may be appropriate in homogenous urban areas. Fixed rates may unreasonably tax public services e. g. schools and community buildings. Differential rates may better reflect the economic circumstances of larger Authorities with significant variations in character, land property value. Differential Rates recognise that many types of development and development in disadvantaged locations will not be capable of making any CIL contribution. Differential Rates must be based solely on economic viability evidence and require greater justification and more fine grained viability assessment Nationwide CIL Service

Charging Zones Determine Charging Zone Complexity – a direct reflection of micro economic circumstances or a broad overview? Charging Zones may be quite simple (urban/rural) but in many cases the economic circumstances will justify a more sophisticated approach Influence of Local Policy Residential Zones are likely to differ from Commercial Zones and require separate Maps. Charging Zones may be based on any type of boundary (Parishes, Wards, Post Codes) but must be robust and defensible based on the valuation evidence Future Proofing Nationwide CIL Service

Viability Assessment – The Principle CIL CIL will generally be extracted from the increase in land value resulting from planning permission. The approach to land valuation assumptions is essential to establishing a robust CIL system NPPF March 2012 – “To ensure viability, the costs of any requirements likely to be applied to development should provide competitive returns to a willing land owner and willing developer to enable the development to be deliverable”. Planning Obligations Developers Profit Development Value Construction Costs Land Value Nationwide CIL Service

Land Valuation Gross Residual Value Market Value of Proposed Land Use Comparable Evidence Assuming PP Existing Use Value Comparable Evidence Assuming no PP 60% To Landowner Existing Use Value 40% To Local Authority Margin For Landowners Profit & Local Authority Contributions Benchmark Market Land Value Margin For CIL Local Authority UPLIFT Market Value Benchmarking Nationwide CIL Service

Land Value Benchmarks Residential Base Land Value Assumptions 3 Bed House Plot Value Greenfield to Residential Industrial to Residential Zone 1 9600 12000 16000 Zone 2 10800 13800 18000 Zone 3 13200 17200 22000 Zone 4 15000 19800 25000 Zone 5 20000 27500 40000 Commercial Land Value Assumptions Food Retail Land Value Sqm Greenfield to Food Retail Industrial to Food Retail Zone 1 121 132 Zone 2 151 162 Zone 3 151 162 Zone 4 181 192 Food Retail 200 250 300 Nationwide CIL Service

Viability Assessment – The Model Development Value (Based on Floor Area) £ 2, 200, 000 Eg 2000 sqm Industrial Unit@ £ 1, 100 per sqm Development Costs Land Value £ 400, 000 Construction Costs @ £ 450 sqm £ 900, 000 Abnormal Construction Costs (Optional) £ 0 Professional Fees (% Costs) £ 90, 000 Legal Fees (% Value) £ 30, 000 Statutory Fees (% Costs) £ 30, 000 Sales & Marketing Fees (% Value) £ 40, 000 Contingencies (% Costs) £ 50, 000 Section 106 Contributions (Optional) £ 0 Finance Costs (% Costs) £ 100, 000 Developers Profit (%Return on cost or revenue) £ 350, 000 Total £ 1, 990, 000 Output Gross Margin £ 210, 000 CIL Rate (Maximum Levy per sqm) £ 105 Nationwide CIL Service

Affordable Housing Assessment DEVELOPMENT SCENARIO BASE LAND VALUE SCENARIO DEVELOPMENT LOCATION (ZONE) DEVELOPMENT DETAILS Affordable Proportion Affordable Mix Development Floorspace Development Value Market Houses 7 Apartments 14 2 bed houses 28 3 Bed houses 14 4 bed houses 7 5 bed house Intermediate Houses 3 Apartments 5 2 Bed house 2 3 Bed House Social Rent Houses 2 Apartments 3 2 Bed house 1 3 Bed House Affordable Rent Houses 5 Apartments 8 2 Bed house 2 3 Bed House 100 Total Units Development Value Residential Viability Appraisal Mixed Residential Greenfield to Residential Zone 1 0 Total Units 30% 0 Affordable Units 30%Intermediate 20%Social Rent 6489 Sqm Market Housing 65 sqm 70 sqm 88 sqm 115 sqm 140 sqm 60%Open Market Value 65 sqm 70 sqm 88 sqm 40%Open Market Value 65 sqm 70 sqm 88 sqm 50%Open Market Value 65 sqm 70 sqm 88 sqm 2200£ per sqm 2200£ per sqm 1320£ per sqm 880£ per sqm 1100£ per sqm Apartments 10 2 bed houses 20 3 Bed houses 40 4 bed houses 20 5 bed house 10 50% Affordable Rent 2163 qm Affordable Housing S £ 1, 000 £ 2, 156, 000 £ 5, 420, 000 £ 3, 542, 000 £ 2, 156, 000 £ 231, 660 £ 415, 800 £ 209, 088 £ 102, 960 £ 184, 800 £ 92, 928 £ 321, 750 £ 92, 928 £ 16, 702, 686 Nationwide CIL Service

Viability Testing – The Results Maximum Residential CIL Rates per sqm 25% Affordable Housing Mixed Residential Development Starter Housing Apartment Block 3 Bed Houses Greenfield to Residential £ 159 £ 172 -£ 49 £ 183 Industrial to Residential £ 138 £ 146 -£ 78 £ 161 Residential to Residential -£ 84 -£ 48 -£ 145 -£ 37 Greenfield to Residential £ 50 £ 65 -£ 140 £ 115 Industrial to Residential £ 30 £ 41 -£ 169 £ 90 -£ 167 -£ 132 -£ 225 -£ 81 Greenfield to Residential -£ 116 -£ 80 -£ 467 -£ 62 Industrial to Residential -£ 136 -£ 103 -£ 496 -£ 83 Residential to Residential -£ 281 -£ 229 -£ 532 -£ 210 Charging Zone/Base Land Value 1 High Value 2 Medium Value Residential to Residential 3 Low Value Nationwide CIL Service

CIL Revenue Projection Determine development floorspace projections for chargeable categories of development over the plan period Test various rates of CIL against development projections and establish draft CIL rates Calculate total CIL revenue from all chargeable development and compare with the Infrastructure Funding Deficit It will be important to demonstrate that the overall revenue raised by CIL does not exceed the level required to meet the Infrastructure Funding Deficit ……. . If it does, CIL rates have been set too high. This will be the first test of examination. Nationwide CIL Service

CIL Rate Setting – The Appropriate Balance CIL Regulation 14 requires that a Charging Authority, in setting CIL rates: - Must aim to strike what appears to the Charging Authority to be an appropriate balance between ‘the desirability of funding infrastructure from CIL’ . . . ‘and the potential effects (taken as a whole) of the imposition of CIL on the economic viability of development across its area’ • Ensure rates are set in accordance with the Statutory Guidance (CSCSP March 2010 – Paras 34 -40 on consistency of approach) • Where the evidence indicates negative or very marginal viability, zero CIL rates may be considered • CIL is not a policy tool. Statutory Guidance advises that rates should only be set in accordance with economic viability evidence • Selectively favouring certain categories of development by zero rating them to encourage growth may breach State Aid rules. CIL challenges may emerge beyond Examination Nationwide CIL Service

CIL Charging Schedule When CIL Charging Zones and Proposed CIL Rates have been fixed and approved by the Authority, a Preliminary Draft Charging Schedule can be prepared for public consultation. For a Variable Rate system the PDCS will comprise a Charging Zone Map and a table of CIL rates for each category. Additional maps and tables will be required where Charging Zones differ between Commercial and Residential uses. Nationwide CIL Service

CIL - Queries Adrian Kerrison nationwidecilservice. com adrian. kerrison@nsdc. info Tel 01636 655801 Nationwide CIL Service