Financialisation of the planning process – development viability modelling - Professor Neil Crosby, Professor Peter Wyatt, Professor Pat McAllister – Department of Real Estate and Planning
Modelling the economic viability of development schemes has become an important component of the planning process in England. Government policy since 2010 has been heavily orientated towards the delivery of affordable and social housing funded by development profitability rather than the public purse. The viability of development in any locality is assessed by an appraisal of the profitability of development, both across the area as a whole and within individual sites (a Financial Viability Assessment – FVA).
The University of Reading has a 50-year record of research into real estate appraisal and valuation and major links with the planning and real estate professional institutions. Research carried out at Henley Business School by Professors Crosby, McAllister and Wyatt both individually and collectively since 2010, supported by other members of the Department of Real Estate and Planning – principally Professor Sarah Sayce and Dr Emma Street – has investigated both policy guidance and the application of standard appraisal methods within FVAs. They identified significant flaws with the application of the standard residual method of valuation and also revealed a major flaw with the Government’s 2014 planning practice guidance. These issues combined to create a situation whereby the higher land prices paid by developers were being “reclaimed” in reduced allocations of affordable housing. Between 2010 and 2017, major house builder profits trebled while affordable housing allocations within individual developments halved. Landowners and developers were the beneficiaries at the expense of the community and took an increasing share of the profits generated by the grant of permission to develop.
The dissemination of this research has led to major changes in UK Government policy, central and local government planning practice guidance, decisions in the High Court, and changes to professional guidance. Firstly, a number of London Boroughs and subsequently the Greater London Authority changed its planning guidance in direct consultation with the research team. Secondly, Professor Crosby was an expert witness in the Parkhurst Road planning inquiry decision, supported by the High Court in 2018, which led to a major reversal in the application of the development appraisal model in FVA. Third, again in direct consultation with the research team, in 2018 the Ministry of Housing, Communities and Local Government (MHCLG) replaced its flawed 2014 Planning Practice Guidance. MHCLG also encouraged the professional institutions, led by the Royal Institution of Chartered Surveyors (RICS), to replace the detailed guidance to practitioners representing landowners, developers and local planning authorities underpinning the application of development appraisal techniques to financial viability appraisals. Professors Crosby and Wyatt co-authored new RICS guidance on development appraisals in general in 2019 and have also played the lead author role in drafting the new MHCLG-backed professional guidance on FVAs, due to be published early in 2021.