Community Infrastructure Levy - Draft Charging Schedule (Nov 2014)

Object

Representation ID: 1776

Received: 12/12/2014

Respondent: Cogent Land LLP (Cogent)

Cogent has fundamental concerns with the approach proposed by the Council notably:
* Unviable Rates - The current proposed CIL rates are unviable and risk rendering a significant
* proportion of the housing supply across the District undeliverable;
* Incorrect Assumptions - A number of the key viability inputs adopted by PBA are incorrect. This results in an over-estimation of the maximum CIL rates that can be supported;
* Housing Delivery Cogent believes it is important to highlight that an unviable CIL poses a real risk of a materially reduced housing delivery, which in turn will affect the level of receipts collected. This is important as the Council is relying on CIL contributing to the significant funding gap in the Borough;
* Charging Zones - scale of development. Whilst the principle of applying differential rates is not questioned, the proposed Charging Zone 1 includes areas that the viability evidence proves cannot support a CIL rate; and
* Housing Supply There has been persistent under-delivery housing supply is heavily reliant on unplanned development across the Borough. This is particularly important as the future housing requirements for the Council, based on emerging information from the Thames Gateway Partnership, indicates significantly higher numbers than previously delivered under the Core Strategy. It is therefore essential that a higher buffer (minimum of 40%) is incorporated to reflect the already existing risk to the housing supply and to ensure the delivery of infrastructure and community facilities required to support the enhanced level of growth across the Borough, whilst ensuring that SBCs strategic objectives are met.

Object

Representation ID: 1777

Received: 12/12/2014

Respondent: Cogent Land LLP (Cogent)

As a result of these concerns we do not believe that the Council has demonstrated that the proposed rates are viable and will not threaten the delivery of the Plan. We have subsequently prepared the following representation, which looks at the following:
* Section 1 Is the DCS supported by background documents containing appropriate available evidence?
* Section 2 Are the proposed rates informed by and consistent with the evidence on economic
* Section 3 Has SSBC provided evidence that shows that the proposed rates would not threaten delivery of the relevant Plan as a whole?
* Section 4 The Effective Operation of CIL
Where relevant this representation provides comment on the supporting evidence/ existing guidance and also makes reference to policy documents, a list of which can be found at Appendix 1.

Comment

Representation ID: 1778

Received: 12/12/2014

Respondent: Cogent Land LLP (Cogent)

In submitting this representation, we are only commenting on particular key areas of the evidence base. Cogent particular comments relate to the proposed rates for residential development and specifically the rate in Zone 1 (£20 per sq m).

Comment

Representation ID: 1779

Received: 12/12/2014

Respondent: Cogent Land LLP (Cogent)

We would highlight that the lack of reference to other parts of the evidence base cannot be taken as agreement with them and we reserve the right to make further comments upon the evidence base at the Examination stage.
Finally, the objective of this representation is not to oppose CIL; it merely seeks to ensure that viable rates, based on the evidence and a collective interest to deliver well planned, viable and feasible development in the Borough are adopted.

Comment

Representation ID: 1780

Received: 12/12/2014

Respondent: Cogent Land LLP (Cogent)

Is the DCS supported by background documents containing appropriate available evidence?
As raised at the start of this representation, the Council will be required to demonstrate at Examination that the DCS is supported by appropriate available evidence (emphasis added). It is therefore essential that the viability appraisals are fit for purpose and strike an appropriate balance.

Comment

Representation ID: 1781

Received: 12/12/2014

Respondent: Cogent Land LLP (Cogent)

Appropriate Available Evidence
Owing to the key test of Regulation 14(1) it is important that the viability appraisals prepared are fit for purpose. For the purpose of the DCS we have assumed that SSBC is relying on the following documents prepared by BNP Paribas Estate
*CIL Viability Study (May 2014);
*CIL Viability Addendum Note (July 2014); and
*Responses to Savills Representation (September 2014)
We have therefore reviewed the viability evidence set out above. Our specific comments in relation to these documents are set out

Object

Representation ID: 1782

Received: 12/12/2014

Respondent: Cogent Land LLP (Cogent)

Up-to-date Evidence
It is fundamental that the supporting viability work incorporates reasonable assumptions reflective of the current market to ensure that the rates are set at viable levels. We are therefore concerned that the Viability Study has not been updated since the PDCS stage. This is important; as by the time the DCS is examined the data and assumptions adopted in the viability testing will be almost 12 months out of date.
We would therefore strongly advise that SSBC update their Viability Study to ensure that the data and inputs are appropriate.

Object

Representation ID: 1783

Received: 12/12/2014

Respondent: Cogent Land LLP (Cogent)

Viability Inputs
Cogent and Savills continue to fundamentally disagree with a number of the assumptions made by BNP in the viability testing. These are discussed in greater detail below.
As stated in our previous representations, the blended profit rate adopted by BNP in the Viability Study is below the minimum level required by national housebuilders, developers and land promoters.

Object

Representation ID: 1784

Received: 12/12/2014

Respondent: Cogent Land LLP (Cogent)

We note that in their representation responses to Savills, BNP has made the following comment "BNPRE strongly disagrees (that) the profit margin relates to risk.The approach taken reflects the reduced risk associated with developing affordable housing as any risk associated with take up of intermediate housing is borne by the acquiring RP, not by the developer. A reduced profit level on the affordable housing reflects the GLA Development Control Toolkit and the Homes and Communities guidelines in both its Economic Appraisal Tool (EAT) and Development Appraisal Tool (DAT). We would also highlight that this approach has been accepted at numerous CIL examinations and site assessments BNPPRE has undertaken"

In response, we would highlight the following:
*Relationship between profit and risk BNPhave commented that they do not agree that profit margins relate to risk. This contradicts the NPPF which states that to ensure viability; developments should provide competitive returns to a willing land owner and willing developer. We would also highlight a recent appeal decision where the Inspector commented that 'The amount required by a developer to undertake the development is a reflection of the anticipated risk;
*Brownfield Land on previously developed land. These sites by their very nature can require significant upfront costs and abnormal costs that would not be required on greenfield sites. In these instances, the profit margin and Return on Capital Employed (ROCE) becomes much more important. The minimum profit margin required by housebuilders and their lenders is 20% on gross development value (GDV). However, this increases where the risk and/or upfront costs are higher, i.e. for regeneration and brownfield sites. We would therefore expect a minimum of 20% on GDV (blended) to be tested;
*Reduced risk for affordable housing - We strongly disagree with the assertion from BNP that risk associated with take up of intermediate housing is borne by the acquiring RP, not by the developer it assumes that the developer has already secured a Registered Provider prior to securing the site. It is increasingly common for developers to purchase land prior to securing an offer from Registered Providers. In these instances, the risk has not been lowered and developers will subsequently apply the same risk profile to the entire site;
*Toolkits The GLA and HCA toolkits were produced when grant funding was still readily available for affordable housing. In todays market, grant funding for affordable housing is less readily available. It is therefore common practice for developers to purchase sites before they have secured the sale of the affordable housing. Developers are subsequently subject to market risk across both the private and affordable housing. There is subsequently a risk associated with the affordable housing, in addition to increased holding and finance costs that was not present under previous systems of funding. A blended rate reflective of this increased risk should therefore be applied across the entire site;
*Blended Rates BNP have applied a profit rate of 20% on GDV for the private element and 6% on GDV for the affordable. This reflects the following blended rates, which are significantly below the minimum level accepted by national house builders:
* 30% Affordable Housing 15.8% on GDV
* 20% Affordable Housing 17.2% on GDV
In support of the above, we have attached a report on Competitive Developer Return (Appendix 3), which provides further evidence on the minimum profit margins required by Plc housebuilders. Taking all of this in to account, we would therefore ask that a minimum profit level of 20% on GDV (blended) plus 25% ROCE across all tenures, subject to consideration of the risk profile of the scheme, is adopted in the viability testing.

Comment

Representation ID: 1785

Received: 12/12/2014

Respondent: Cogent Land LLP (Cogent)

Professional Fees
As discussed previously, we would advocate an allowance of 12% for professional fees on all typologies tested in Southend-on-Sea. We note that BNP fees range between 8% and 12%, depending on the nature of the site. This is important, as the nature of the site can have a significant impact on the level of professional fees incurred.