Development viability

The economic viability of development is an essential consideration of the planning system, both in terms of plan-making and when determining planning applications. Tower Hamlets Council is a leading London borough that is at the forefront of development viability ensuring that it maximises affordable housing for residents on the Council’s housing waiting list, as well as assisting in the creation of mixed and balanced communities. This includes investing and exploring in digital solutions to develop the way in which Financial Viability Assessments (FVA) submitted by developers are assessed, ensuring accurate levels of developer contributions are provided. You can find out more on the Viability Assessment Checker (VAC) webpage.

Tower Hamlets Viability (THV)

THV is an internal team of experienced viability officers with the primary focus to provide specialist advice on matters concerning affordable housing where affordability is a considering factor.

The Development Viability Team play a vital role in securing funding for the infrastructure required to assist development and support the Council to secure maximum affordable housing contribution for the Borough. The team provides the Council with expertise on financial viability and associated practices.

Primary roles include:

• THV officers undertake reviews of site development appraisals of live planning applications. Note - where appropriate, external viability consultants may be appointed at the Council’s discretion.

• Actively leading the adoption of the Councils Community Infrastructure Levy (CIL) Charging Schedule – adopted January 2020;

• Assisting with the preparation for and adoption of the Councils Local Plan – adopted in January 2020;

• Provide valuation advice in relation to CIL payment in kind initiatives.

Reviews carried out by THV will have regard to the following relevant legislation, practice statements and guidance documents:

• The National Planning Policy Framework (NPPF) and related Planning Practice Guidance (PPG) 2019;
• RICS - Financial viability in planning: conduct and reporting, 2019;
• RICS - Assessing viability in planning under the National Planning Policy Framework 2019 for England
• RICS – Comparable Evidence in Real Estate Valuation, 2019;
• RICS – Valuation of Development Property, 2019;
• The London Plan 2021 (Greater London Authority);
• Draft London Plan (Greater London Authority);
• Tower Hamlets Local Plan 2031: Managing growth and sharing benefits;
• Greater London Authority (GLA) Homes for Londoners – Affordable Housing and Viability Supplementary Planning Guidance (SPG), 2017. 

[Note 1] A notable error has been identified (Formula 3) to calculate the additional financial contribution payable to the Council. In calculating the Developer’s profit on the surplus GDV the previous formula had sought to compare the GDV with build costs. This was inaccurate and the gross development value are to be compared. As such component ‘G’ has since been replaced with ‘C’ in the SPD. The revision is consistent with the Mayor of London’s Affordable Housing & Viability SPG.

Incorrect formula:

Revised corrected formula

Where:

Viability Procedure Practice Note (2021)

This is the council procedure when considering viability as part of a planning application or review. It addresses both new applications as well as early, mid and late reviews.

This practice note informs the procedure the Council follow when viability is a consideration as part of a planning application/review. It’s a short note and addresses both new applications as well as early/mid/late reviews.

• Viability Procedure Practice Note (2021)

Impartial & objective reviews without interference

THV comprises of Royal Institution of Chartered Surveyors (RICS) qualified Surveyors who are obliged to provide a true and accurate reflection of their opinion of value. Any review undertaken by viability officers will justify the Councils position with sufficient available data. It is important to note that these reviews will be carried out without bias. THV will set out within all reports a statement which confirms that reviewers have acted impartially, objectively and without interference.  

Should the Council be faced with any potential conflicts of interests in conducting reviews, these will be clearly identified on the outset and considered carefully on all accounts.

The Council has actively ensured any review carried out will be done so by appropriate and suitable practitioners. This is in line with guidance/best practice where it is appropriate for viability officers to assess FVA’s internally. The RICS - Financial viability in planning: conduct and reporting, 2019 includes within its definition of viability assessments as: “An assessment produced by the reviewer [either on behalf of an LPA or by themselves” [page 7].

The Planning Practice Guidance 2019 states “it is an expectation that any viability assessment is prepared with professional integrity by a suitably qualified practitioner” [Paragraph: 020 Reference ID: 10-020-2018072]. RICS members are considered suitably qualified practitioners [RICS - Financial viability in planning: conduct and reporting, 2019 Page 7] to undertake viability reviews and as such members are bound by the respective regulations. THV officers will undertake reviews with integrity ensuring a fair and accurate outcome (RICS global professional and ethical standards).

Sub-practitioners (Cost Consultants)

THV will externally source suitably qualified Quantity Surveyors to assess build cost information received by the Council to inform the FVA’s carried out by TVH. All appointed practitioners will be subject to the same requirements as stated above to ensure accurate views relating to construction costs, without bias.

When is an FVA required?

A Financial Viability Assessment (FVA) is required when a scheme triggers an affordable housing requirement or where viability is a relevant consideration. Any planning applications put forward can either follow the Viability Tested Route or the Fast Track Route. It is important to note that the Mayor’s Affordable Housing and Viability Supplementary Planning Guidance (SPG) introduced the threshold approach to viability to determine which route planning applications will proceed through. For example, if a scheme is to proceed via the Viability Tested Route, the scheme would not have met policy requirements and a full FVA should be submitted along with supporting evidence to substantiate the inputs and assumptions made. This will then be assessed by THV who upon review will provide a view of the maximum reasonable affordable housing contribution the scheme can viably deliver.

When is an FVA not required?

Under the Threshold approach, schemes which follow the Fast Track Route will not be required to provide an FVA or any other viability information. As well as this, schemes that follow the Fast Track Route will not be subject to a late stage review mechanism. However, in order to proceed through the Fast Track approach, a scheme must:

• Provide at least 35% affordable housing without any public subsidy;
• Meet the housing tenure split requirements stipulated by the Council;
• Implement the scheme within 2 years or scheme will be subject to the early stage review;
• Avoid any off site or cash in lieu contributions.

It is important to note that land in public ownership or public use, will be required to deliver at least 50% affordable housing without a grant or public subsidy in order to benefit from the Fast Track Route. Similarly, industrial land requires 50% affordable housing contribution for strategic industrial locations, locally significant industrial sites and other industrial sites. 

Tower Hamlets Development Viability Supplementary Planning Document (SPD)

The SPD provides guidance as to how Development Plan policies should be applied in a development viability context when determining planning applications. It aims to provide greater clarity to both applicants and the general public and ensures that the principles of sustainable development are at the forefront of decision-making in Tower Hamlets. Applicants can find all the information they need in the SPD on how THV implement planning policies where viability is an issue. The SPD is soon to be updated to reflect up to date plans/policies.

All financial viability assessments (FVA) must be accompanied with an Appraisal Inputs Summary Sheet, which is available to view below:

Appraisal Inputs Summary Sheet

For more information, please contact us at viability@towerhamlets.gov.uk

Note – all FVA’ s submitted to the Council will be made publicly available, including reviews undertaken by the Council (or external consultant). Developers are to reasonably expect this to be the case. Should an applicant believe any information should not be made available, a formal case must be submitted with their FVA. This will be determined and assessed against the public interest test and a determination will be made.