Planning Viability in London: What It Is, How It Works, and What It Means for Developers and Homeowners

A planning viability assessment (also called a development appraisal or financial viability appraisal — FVA) is a financial model that projects the costs and revenues of a proposed development scheme and calculates whether the scheme is financially viable at a given level of planning obligations.

The key inputs to a viability assessment: Gross Development Value (GDV): the total projected revenue from the completed development — the sum of the projected sale values of all private residential units, plus the value of the affordable housing units (which is typically calculated as the discounted value to a registered provider — approximately 50–70% of open market value for social rent and around 80% for intermediate affordable housing), plus any commercial, retail, or other revenue from non-residential elements. GDV is typically supported by comparable market evidence from recently sold new build units in the area.

Development costs: all costs of developing the scheme, including: land acquisition cost; planning and design fees; construction cost (typically projected on a £/m² basis by reference to industry benchmarks such as BCIS — the Building Cost Information Service — adjusted for scheme-specific factors); finance costs (interest on development finance at the current market rate); developer's overhead and profit (typically 15–20% of GDV for a private residential scheme; 6% for affordable housing); S106 contributions and CIL; abnormal costs (ground remediation, archaeological investigation, highway works, service diversions, or other site-specific costs).

Benchmark Land Value (BLV): the minimum land value at which the landowner will sell — typically calculated as the Existing Use Value (EUV) of the land (its value in its current, pre-development use) plus a landowner's premium (to incentivise the landowner to sell for development). The BLV is the most contested element of a viability assessment, because a higher BLV makes the scheme appear less viable, allowing the developer to argue for lower S106 contributions. Local authorities and the NPPF/PPG guidance require that the BLV is based on the EUV+ approach (not on the market expectation of planning permission — the "hope value" approach that would make most schemes appear unviable at full policy compliant affordable housing levels).

The viability conclusion: if the RLV calculated from the GDV minus development costs (including full S106 contributions) is lower than the BLV, the scheme is presented as not viable at full policy compliant contributions. The viability assessor then typically models different scenarios (different levels of affordable housing, different S106 contributions, or a different development mix) to find the level of contributions at which the scheme achieves the BLV — and that level becomes the basis for the negotiated S106 agreement.

While planning viability is primarily relevant to major residential development schemes (typically those of 10 or more dwellings in London), the framework has practical implications for smaller developers, self-build developers, and homeowners seeking planning permission for conversions or small residential schemes in London:

Small development viability threshold: Many London boroughs have a threshold below which S106 affordable housing obligations do not apply — in most London boroughs, developments of fewer than 10 units (and in some boroughs, fewer than 25 units) are exempt from affordable housing S106 obligations but are still subject to CIL. For a small residential development of 5–9 units in London, the main planning obligations are likely to be CIL and potentially S106 contributions for open space, play space, or transportation improvements — but not affordable housing.

CIL exemptions and self-build: The CIL Regulations provide a self-build exemption from the Community Infrastructure Levy for dwellings that the owner intends to use as their own home. The exemption applies where the owner has obtained planning permission, commenced development, and submitted a valid self-build exemption claim before commencement. The self-build exemption can be lost if the property is sold within 3 years of completion. For a London homeowner who obtains planning permission to demolish their existing house and build a new, larger property on the same site (a "self-build" project in planning terms), the CIL self-build exemption can represent a very significant saving — CIL on a 200m² new build house in inner London at Borough CIL rates of £200/m² + Mayoral CIL of £100/m² would otherwise be £60,000.

Conversions and change of use: Permitted development rights for change of use (for example, converting a commercial building to residential use under Class MA — commercial, business and service to dwelling houses) typically attract CIL on the net additional floor space created (the existing floorspace in the building is deducted from the new residential floor space for CIL calculation purposes). Where a building has been in lawful use for 6 months of the past 3 years, the mezzanine exemption from CIL (the "in-use building" exemption) reduces the CIL liability on conversion schemes.

One of the most important developments in London planning viability practice since around 2016 has been the introduction of review mechanisms in S106 agreements — provisions that allow the level of affordable housing to be reviewed and potentially increased if the scheme turns out to be more financially successful than the viability assessment predicted at the time of planning.

Late stage review (LSR): A Late Stage Review (LSR) mechanism in a S106 agreement requires the developer to submit an updated viability assessment at a specified late stage in the development (typically when 75% of the private units have been sold or when the development is substantially complete). The LSR compares the actual development revenues and costs with the appraisal submitted at the planning stage — if the outturn profit is higher than projected (which it often is, particularly in a rising property market), the developer must make an additional affordable housing contribution (in cash or in kind) to the local authority from the additional profit. LSR mechanisms have been increasingly required by London boroughs and by the GLA for major schemes where viability-based reductions from policy-level affordable housing have been agreed. The GLA's viability SPG (Supplementary Planning Guidance) now requires an LSR mechanism in all major residential permissions where the affordable housing provision has been reduced from policy compliant levels on viability grounds.

Early stage review (ESR): An Early Stage Review (ESR) mechanism may be triggered if development has not commenced within a specified period of the grant of planning permission (typically 2–3 years). An ESR re-tests the viability of the scheme at the date of commencement and may allow the LPA to require additional affordable housing if market conditions have improved since the original planning permission was granted.

Transparency of viability information: The Planning Practice Guidance (PPG) now requires that all viability assessments submitted in support of planning applications in England are made publicly available (subject only to genuinely commercially sensitive information being redacted — and the redaction must be justified), improving public scrutiny of viability arguments. The GLA publishes viability assessments submitted for major London schemes on its planning portal.