Development Economics a practical case study
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Transcript of Development Economics a practical case study
Development Economics a practical case study
Kathleen DunmoreJo HarrisonGary TuckerPaul Brunige
Changing market economics• House prices (outside London
and SE) are still lower than in 2007
• East Midlands region of contrasts– Derbyshire Dales median
house price over £200,000– Bolsover median price under
£100,000
• Development is stalling – East Midlands 15,720
units 2007/08– 9,510 units 2011/12
DCLG table 253
3
Lessons from previous downturns
• It takes several years for recovery to commence.
• In the 1990s house prices did not recover to their 1989 peak until 1997.
• By 1938 house prices were still below their 1931 peak.
• House prices fell in 4 of the 8 years following a downturn
1930s house price crash
-12-10-8-6-4-20246
1931 1932 1933 1934 1935 1936 1937 1938
a bumpy landing in the 1990s
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
1989 1990 1991 1992 1993 1994 1995 1996 1997
What is a normal market ?• Historic long term house
price trend is upwards
• Fuelled by household growth and changing patterns of economic activity – spot winner and loser locations
• But over a 6 year period price change can range from zero to house prices doubled
• Plan for what – and what price localism ?
• How often to review the plan
House price change over 6 yrs
0.00
0.50
1.00
1.50
2.00
2.50
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1=price 6 yrs ago
5
Residual valuation model• Gross Residual =
revenue – costs
• Nett Residual (RV) = gross residual – (S106 contributions + CIL + affordable housing)
• CIL Not negotiable• On-site S106 essential• All other requirements
negotiable ??
and now CIL
Some sites are more equal than others
• Land values are highest in the rural areas
• And lowest in the market towns
• Two 1,000 unit SUEs are proposed on the edge of the market towns. What will their values and costs be?
South Northants 45 dph no grant
£0.00£0.50£1.00£1.50£2.00£2.50£3.00£3.50£4.00£4.50
BrackleyNorthern
Hinterland
Rural SouthWest
Central Rural Northern Rural Towcester Brackley
£m
0% 10% 15% 25% 30% 35% 40% 50%
Negotiating a stalled site
• Understand what is viable• Be clear about what you want – and how much it costs• Try not to get into a position where there is only 1
possible site for development• Understand that very big sites have higher costs and
lower values than small sites – but location is key• Development is a risky process• There are no “right answers” - only what works for you
Principles of viability appraisal applied to specific schemes
• Calculation– Compare revenues and costs– Arrive at a calculated residual value (RV)
• Negotiation– Agree between parties what is a reasonable RV– Identify areas of uncertainty and agree how to share
risk and reward– Set up appropriate legal mechanisms
• Outcome– Improved mutual understanding and trust
5 Year Land
Supply !!
Radstone Fields S. Northamptonshire
• 1,000 units, greenfield location edge of market town• Essential to 5 year land supply• Target
– 40% affordable housing, – CSH level 3 – high design standards - kerb stones, street furniture– New secondary school– £1m+ town centre improvements – Total cost S106 and design £20m, infrastructure £20m
(£40,000 per dwelling)
How it worked out
The deal• Agreed 22% AH, • S106 with phased review • All uplift in RV goes to local
authority as additional affordable housing on site or as commuted sum
• Phased review encourages early start on site
Why it worked• Willing and informed
landowner and developer• Political will• Officers actively involved in
viability appraisal – not a black box
• The right size of development with no punitive infrastructure requirements
• In the right place – would it have worked in N Northants?