Planning Viability Appraisals for London Residential Development

A planning viability appraisal is submitted voluntarily by a developer or applicant when they are seeking to reduce or modify the planning obligations that a local planning authority would normally require as a condition of granting planning permission. In London, the main obligations that are subject to viability assessment are: Affordable housing — the London Plan requires residential schemes of 10 or more units (or on a site of 0.25 hectares or more) to provide a minimum of 35% affordable housing by habitable room, rising to 50% on publicly owned land. The cost of providing affordable homes (which are typically transferred to a registered housing provider at a discounted price called the discount to market value) significantly affects the economics of a development scheme. Community infrastructure levy (CIL) — London has a Mayoral CIL and most London boroughs also have a local CIL, which is a fixed charge per square metre of new floorspace. CIL cannot be negotiated on viability grounds in the same way as affordable housing (except in exceptional circumstances). Section 106 obligations — other planning obligations (public open space contributions, transport contributions, employment and training requirements) are also potentially subject to viability review. A viability assessment is not required for every residential application — for smaller schemes, or where the developer accepts the full obligation package, none is needed. For larger schemes where the affordable housing obligation is significant, it is standard practice for the developer to commission a viability assessment.

The standard methodology for planning viability assessment in England is the residual land value (RLV) model, described in the RICS Professional Standard "Assessing Viability in Planning Under the NPPF 2019" and the Planning Practice Guidance. The calculation works as follows: Step 1 — Gross Development Value (GDV): the sum of the projected sale values of all market-sale units in the scheme (based on comparable sales evidence), plus the projected transfer price for any affordable units (paid by the housing provider), plus any commercial income. Step 2 — Development costs: all costs associated with bringing the development forward, including construction costs (estimated by a QS), professional fees (architect, engineer, planning consultant, project manager — typically 10-15% of construction cost), abnormal costs (site-specific items such as demolition, contamination remediation, or abnormal foundation costs), sales and marketing costs (typically 2-3% of market sale GDV), finance costs (interest on land acquisition and construction costs throughout the development period — a significant element for longer programmes), and developer's profit (the return required to justify the risk of the development, typically benchmarked at 15-20% of GDV for market-sale schemes — this is a key contested area). Step 3 — Residual land value: GDV minus all development costs (including the full affordable housing obligation as a cost to the scheme). Step 4 — Benchmark land value (BLV): what the site is worth in its existing or alternative use — the minimum return a landowner would accept rather than not sell. If RLV > BLV, the scheme is viable with the full planning obligations. If RLV < BLV, the scheme is argued to be unviable and the developer seeks a reduction in the obligation package.

The benchmark land value (BLV) is the single most contested element of any planning viability appraisal, because it determines the hurdle that the residual land value must clear. In practice, landowners seek a high BLV (to justify the land price they paid or expect to receive), while local planning authorities seek a low BLV (to maximise the planning obligations the scheme can sustain). The Planning Practice Guidance (PPG) is clear that the BLV should reflect the existing use value (EUV) of the site plus a premium sufficient to incentivise the landowner to sell — it should not simply reflect the price the developer paid for the land (the actual acquisition price), because that price may already incorporate an expectation of reduced planning obligations. In practice, this means that where a developer has paid an inflated price for a site on the assumption that planning conditions would be negotiated down, the planning authority (and the DVS) may refuse to use the acquisition price as the BLV, instead using a lower EUV-plus calculation. This is an area of frequent dispute between applicants and local planning authorities, and has been subject to significant judicial scrutiny in appeal cases and High Court challenges.

The District Valuer Service (DVS) is a specialist government valuation service that operates within HMRC. London planning authorities routinely commission the DVS to independently review and challenge viability submissions for significant residential development schemes. The DVS reviews the developer's viability appraisal in detail, scrutinising the GDV assumptions (comparable sales evidence, unit mix, unit sizes), the construction cost estimates, the professional fees and contingencies, the finance assumptions, the developer's profit benchmark, and particularly the benchmark land value. The DVS produces a report summarising their findings, which may: endorse the developer's position; suggest upward or downward adjustments to specific inputs; or recommend a higher affordable housing provision than the developer proposed. The DVS report is presented to the planning authority, and the outcome typically forms the basis for negotiating the final affordable housing obligation with the developer. National planning policy (NPPF paragraph 58 and PPG) requires that viability assessments submitted in support of planning applications are made publicly available as part of the application documents, except in exceptional circumstances. This transparency requirement has significantly increased public and third-party scrutiny of viability submissions in London.