Nick Ireland
Nick Ireland
Nick Ireland
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RTPI Network Event: S106 – Time for Review<br />
29 th July 2009<br />
<strong>Nick</strong> <strong>Ireland</strong>: Associate Director, GL Hearn<br />
Providing property services with business focus<br />
www.glhearn.com
GL HEARN<br />
• 200 staff across 7 UK offices<br />
• Focus on delivering asset value<br />
and driving forward property<br />
development<br />
• Services include planning,<br />
development and affordable<br />
housing advice<br />
Providing property services with business focus<br />
www.glhearn.com
NICK IRELAND, MRTPI<br />
• Joined GL Hearn from GVA Grimley in October 2008<br />
• Background in strategic planning & regeneration<br />
• Part of team which advised Peterborough City Council on<br />
establishing a S106 tariff<br />
Providing property services with business focus<br />
www.glhearn.com
WHERE WERE WE GOING?<br />
• Rising market provided opportunity<br />
to increase developer contributions<br />
to infrastructure …<br />
– Affordable Housing<br />
– Social Infrastructure<br />
– Physical Infrastructure<br />
… and to demand higher standards<br />
– Code for Sustainable Homes/<br />
Buildings<br />
• S106 acted as a means of capturing<br />
part of the rise in value of land<br />
Providing property services with business focus<br />
www.glhearn.com
WHERE ARE WE NOW?<br />
• Falling values affecting the viability of development schemes & ability<br />
to support infrastructure<br />
• Fall in capital values of development sites by as much as 50% from<br />
July 2007.<br />
• South East residential land values fallen by 32% from peak to Jan<br />
2009.<br />
• A range of projects have stalled as they are no longer viable, the<br />
developer cannot raise finance or the return is insufficient to justify<br />
the risk<br />
Providing property services with business focus<br />
www.glhearn.com
SCHEMES BECOME UNVIABLE?<br />
• The drop in values will render some schemes unviable<br />
Providing property services with business focus<br />
www.glhearn.com
RESIDUAL DEVELOPMENT APPRAISAL<br />
SCHEME REVENUE (GDV)<br />
Less COSTS (including DEVELOPER’S PROFIT)<br />
= RESIDUAL LAND VALUE<br />
• Residual Land Value for Development Scheme must exceed Existing<br />
Use Value or Alternative Use Value<br />
• Profit on GDV must be sufficient given development risk<br />
Providing property services with business focus<br />
www.glhearn.com
IMPACT OF MARKET TRENDS<br />
• Falling values<br />
• Increasing costs (finance, build)<br />
• Cautious attitudes to risk<br />
Providing property services with business focus<br />
www.glhearn.com
WHERE DOES THIS LEAVE US?<br />
A funding black hole?<br />
• Prospect of<br />
declining public<br />
expenditure in real<br />
terms<br />
• Scheme viability<br />
limiting developer<br />
contributions<br />
Providing property services with business focus<br />
• S106: Asking for<br />
more risks yielding<br />
less<br />
www.glhearn.com
TIME TO REASSESS EXPECTATIONS?<br />
• Reassessing expectations – the boom is bust<br />
• Importance of mainstream funding<br />
• Prioritising investment – some hard choices!<br />
• Pooling contributions<br />
Providing property services with business focus<br />
www.glhearn.com
EFFECTIVE PLANNING REGIME<br />
• Policy framework which provides certainty and defines<br />
priorities<br />
• Short-term/ site specific flexibility<br />
• Setting the ‘terms’ for discussion - Interim Guidance?<br />
• Open and early dialogue<br />
Providing property services with business focus<br />
www.glhearn.com
PROVIDING SHORT-TERM FLEXIBILITY<br />
• Planning consents beyond 3 years<br />
• Reviewing S106 package/ requirements<br />
• Re-phasing infrastructure provision<br />
• Cascade mechanisms for tenure mix<br />
Providing property services with business focus<br />
www.glhearn.com
BENEFITS OF FLEXIBILITY<br />
• In some circumstances, reducing the S106 requirement can make the<br />
scheme viable<br />
• For larger development schemes, the phasing of infrastructure can<br />
have a significant impact on cashflow.<br />
Base With 20% Drop in GDV With Reduced S106<br />
GDV £18,500,000 £14,800,000.0 £14,800,000.0<br />
Land £5,000,000 £5,000,000 £5,000,000<br />
Build £6,000,000 £6,000,000 £6,000,000<br />
Fees £800,000 £800,000 £800,000<br />
S106 £2,000,000 £2,000,000 £450,000<br />
Profit £4,700,000 £1,000,000 £2,550,000<br />
% Profit on GDV 25% 7% 17%<br />
Providing property services with business focus<br />
www.glhearn.com
CAPTURING FUTURE VALUE UPLIFT<br />
• Savills predict house prices will rise 45% over the next<br />
five years.<br />
• Overage/ clawback mechanisms – e.g. Ashford – but<br />
does this conflict with Circular 05/2005?<br />
• For larger schemes, reviewing viability before<br />
commencement of each phase of development<br />
Providing property services with business focus<br />
www.glhearn.com
WHERE NEXT?<br />
• Tariff Mechanisms ?<br />
– Greater certainty but affordable in every case?<br />
– Problems addressing economics of different types/ sizes of site?<br />
– Benefits of pooling and potential to borrow against future receipts<br />
• Tax-increment financing?<br />
• Conservative’s localism agenda and reform of S106?<br />
Providing property services with business focus<br />
www.glhearn.com
KEY POINTS<br />
• Viability modelling is key<br />
• Prioritising infrastructure requirements<br />
• Public and private sector funding<br />
• Open and early dialogue<br />
Providing property services with business focus<br />
www.glhearn.com
The End<br />
<strong>Nick</strong> <strong>Ireland</strong>: Associate Director, GL Hearn<br />
E: nick_ireland@glhearn.com<br />
T: 020 7851 4813<br />
Providing property services with business focus<br />
www.glhearn.com
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