1

Community Infrastructure Levy

Draft Charging Schedule Consultation

Revision of LBR charging zone and rates SUMMARY OF PUBLIC CONSULTATION RESPONSES

Prepared for Draft Charging Schedule consultation

PUBLIC CONSULTATION

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Introduction:

Below is a list of the representations made to the Preliminary Draft Charging Schedule Consultation. Included is also a list of responses from the Council and

BNP.

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No: Date Representor Comments Council

Response/Action

1 21/11/18 Colin Francis ‘Many thanks for this.’ N/A

2 27/11/18 Pierre Fleet – Natural

England

Seeks that we pay attention to Epping forest SAC. Such contributions could be

collected through CIL

We are currently

establishing our

approach to the SAC

with Epping Forest

District Council, and the

other relevant

authorities

3 18/12/18 Sarah Wilks – TFL General comments – they would like to see our Planning Obligations SPD N/A

4 2/1/19 Kayley Smith –

Highways England

Comments regard S278 agreements N/A

5 11/1/19 Mark Furnish – Sport

England

Welcomes the nil rate for ‘other facilities’ and would like us to be more

specific on our Reg 123 List. A playing pitch strategy may help this. They are

seeking more of contribution to sports.

The regulation 123 list

will be reviewed and

the comments provided

by Sport England will be

taken into account.

6 11/1/19 Mattew Spilsbury –

Turley, on behalf of

Moda Living

Issue with charging zone B, fails to comply with NPPF 2018, Fails to recognise

built to rent (Especially in zones A and B), date evidence, re-run the appraisals

for flatted development and remove ground rent investment revenue, clarity

on build cost usage and dates of costs used, s106 and 1500£ is incorporated

in appraisals to reflect obligations – does this reflect what is actually occurring

in LBR, make allowances for exceptional costs, that benchmark land value

evidence is provided to demonstrate the methodology used within CIL

Viability report, more clarity on construction and sales programming, more

evidence for high density apartment development, the growth scenario

provided is misleading given current market conditions, transparency and

more info on the appraisals for site/schemes/typologies

BNP – Below is a more

detailed response.

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7 15/1/19 Wessely Thomas –

Met Police

That policing costs be considered within S106 and CIL contributions We will consider this

when reviewing our Reg

123 list.

8 16/1/19 Donatella Cillo – HNL

Sustainable Places/

Environmental

Agency

Revise Reg 123 list to include environmental infrastructure We will consider this

when reviewing our Reg

123 list.

9 16/1/19 Don Messenger –

DP9, on behalf of

Access Self Storage

The new charge will impact the viability of high density schemes and the

evidence should reflect this, why does the report state 67 typologies when

only 52 have been tested, a list of point of clarity have submitted, the impact

of CIL on tall buildings, how will it impact developments of more than 450

dwellings per hectare, evidence for sales values should be included,

BNP – Below is a more

detailed response.

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BNP Responses for: LONDON BOROUGH OF REDBRIDGE COMMUNITY INFRASTRUCURE LEVY – PRELIMINARY DRAFT CHARGING SCHEDULE CONSULTATION Access Self Storage

Access Self Storage

Comment BNPPRE response

1 These representations are made on behalf of Access Self Storage (‘the Developer’) who have recently submitted two separate planning applications for residential-led developments at 1-17 Station Road and Recorder House. Both application sites form part of identified Opportunity Sites in the recently adopted Redbridge Local Plan (2018). Both sites are located within the proposed Zone B for the purposes of CIL, which is proposed to be subject to a CIL rate of £175/ sqm for residential floorspace.

We would suggest that the Applicant start building the revised CIL rate into their scheme-specific viability assessment now so that this is already reflected when negotiating other parts of the application. The end of scheme viability review will then be able to pick up any differences in the event that alternative CIL rates are eventually adopted.

2 In summary, we consider the PDCS will significantly impact on the viability of high density development and thus significantly restrict the Council’s ability to implement its ambitious vision to propel growth, accelerate housing delivery and deliver high-quality development, which is advocated in both the Ilford Manifesto and the Redbridge Local Plan. The evidence base supporting the PDCS needs to be further developed to understand the viability impact of the proposed CIL rate on high-density development in designated Tall Building Zones.

Experience of high density developments to date in LB Redbridge is that they are not capable of generating any meaningful contribution towards affordable housing. However, such developments will nevertheless have a significant impact on local infrastructure requirements and will need to make a modest contribution towards the costs of essential supporting infrastructure through CIL.

3 The Redbridge Monitoring Report 2014-17 was published in March 2018. Table 4.1 of the report states that completions over the last 5 years has only met 49% of the housing target. Table 4.2 states that only 103 affordable homes were built in 2016/17 and that over the last 5 years only 22% of all homes built are affordable. It does not state whether the affordable homes are intermediate or social rented accommodation. The report therefore illustrates that the borough has not met its key housing delivery targets in recent years, which provides important context in setting a new CIL rate.

The Council recognises that affordable housing impacts on its ability to secure contributions towards essential supporting infrastructure and vice-versa. However, the Council needs to secure both affordable housing and CIL, as growth and development will stall unless infrastructure is funded and provided. The representor should note that boroughs across London have not met their affordable housing targets, yet the Mayor of London recently adopted an increase in Mayor CIL rates. He – like the boroughs - understand and accept that CIL will impact on the ability of schemes to deliver affordable housing. However, the impact of CIL on the level of affordable housing that can be delivered is very small. Critically, if there were no CIL in place, levels of affordable housing would not move

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Access Self Storage

Comment BNPPRE response

significantly higher than the 22% of units cited by the representation.

4 The range and type of development sites considered is not clear in the Evidence Report. Further information and clarification is needed to understand how well these development sites reflect, and demonstrate, the viability impacts of CIL. Clarification is requested in regard to: • The selection criteria that informed the list of development sites; • The geographical location of the sample development sites; • How many of the developments sites form part of identified Opportunity Sites in the Local Plan. • How many of the development sites fall within an Investment and Growth Area and Tall Building Zone and thus would be acceptable for tall buildings and high-density development. • Which are the 3 major sites considered. Detailed case study examples should be provided within the Evidence Report for these 3 examples. • Only 52 developments sites are listed in Table 4.1.1 (not 67). This discrepancy needs to be explained. • The proposed heights of each development site should be confirmed.

The PPG requires that LPAs adopt a typology approach to testing viability, with typologies reflecting the types of schemes that are expected to come forward. The questions indicate that the respondent has not fully understood the approach – the typologies are not tied to a specific location as they are all tested with the full range of values across the borough. Clearly, as noted in the report, some typologies will be more relevant to certain areas than others (e.g. tall buildings will only come forward in the higher value areas with high levels of public transport accessibility).

5 Notwithstanding the questions above, the sample size and type is considered insufficient evidence to inform the proposed CIL rate and fully understand the viability impact on housing delivery and implementing the Redbridge Local Plan. Of the 67 sites selected, only 5 sites are identified as ‘high density’ typology that also exceed 100 homes. These are sites 7, 8, 12, 13 and 14. This is an insufficient sample given the importance placed in high density development for housing delivery in the Local Plan. Of these 5 sites, only 2 exceed a density range of 200 dwellings per hectare and the highest density stated is only 404 dwelling per hectare. This evidence does not include any development sites with a density range of above 500 dwelling per hectare, which are common around highly accessible transport nodes across London, and will become more frequent in Ilford. The submitted planning application for 1-17 Station Road consists of a density range of c, 1,400 units per hectare and Recorder House has a density range of 480 units per hectare. Planning Application 4326/16 for 193-207 High Road,

The reference to 67 typologies was merely a typo – as is clear in Table 4.1.1, 52 typologies are tested. The Council considered the scale of housing across the borough as a whole and the typologies constructed reflect this. Adding typologies would merely replicate the results. It is also worth bearing in mind that each typology is run as 9 sub-typologies which generates 45 typologies. There is not a significant difference in the viability of a scheme with a density of 500 dph in comparison to 404 dph. The construction methodology would not change sufficiently to result in an increase in costs expressed on a square metre basis. The implication here is that high density results exclusively in higher costs but no additional value. There will be a

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Access Self Storage

Comment BNPPRE response

which has a resolution to grant planning consent, also consists of a density of over 900 dwellings per hectare. The failure of the Evidence Document to assess the impact of CIL on any development proposal that exceeds 450 dwellings per hectare is considered a weakness of the analysis. It means that the impact of the proposed CIL rate on higher density development and tall buildings is not fully understood.

significant increase in GDV arising from additional floor area in these schemes relative to the sites’ existing use values. This would improve viability not weaken it. If high density schemes are as unviable as the representation appears to imply, then such schemes will not come forward. It is important to note that the Council’s housing supply is not predicated on densities at these levels.

6 Notwithstanding the absence of this critical information, the evidence base has considered the viability impact of CIL on 5 development sites classed as ‘high density’. Table 6.6.5 sets out the maximum CIL rate with 35% affordable housing for each development that is viable. This analysis highlights the challenging viability of new development in the Borough. It shows that 4 of the 5 ‘high-density’ development sites assessed (that exceed 100 units) cannot viably support any contribution to CIL AND 35% affordable housing. Only site 12, at a density of 170 dwellings per hectare can support any contribution to CIL AND 35% affordable housing. Even for this particular site, it states that a sales value of £6,775/ sqm is needed to fund the £175/sqm CIL rate proposed in the PDCS. This sales figure far exceeds the existing sales values in areas such as Ilford.

This is an issue with the economics of tall buildings, not CIL. Even if CIL is set at zero, these schemes would not be able to provide 35% affordable housing. The Council accepts that there is a trade-off between affordable housing and CIL, but it cannot set its CIL rate on the basis that every scheme will meet the full 35% target. To do so would result in schemes not generating 35% AH but then also not generating income to fund essential supporting infrastructure. In the event that the proposed increase in CIL (alongside Mayoral CIL) cannot be absorbed through a reduction in land value, affordable housing would need to change by only 2.1% to accommodate the proposed increase in Borough CIL (and the recently adopted increase in Mayoral CIL). Alternatively, where viability issues emerge, the tenure mix of the affordable housing could change to preserve the overall percentage – a change in tenure mix from 60% rent and 40% intermediate to 51% rented and 49% intermediate could offset the proposed increase in CIL.

7 Table 6.6.1 shows that even with 0% affordable housing assumed, the proposed £175/ sqm CIL rate can only be viably funded with sales values of around £6,775/ sqm for high density development (which represents a large increase from today’s sales values).

This underlines the point above – if such schemes are unviable without any policy ‘burden’ then they will not come forward – other factors (namely value or costs) need to change to address this situation. The proposed CIL (including the Mayoral CIL at April 2019 rates) amounts to just 3.36% of development costs and this is not a critical factor in making these schemes viable (or

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Access Self Storage

Comment BNPPRE response

unviable). Developments in London have been absorbing similar cost increases on an annual and ongoing basis yet they continue to proceed. It is unrealistic to suggest that a one-off CIL charge amounting to 3.36% of development costs will prevent schemes from coming forward. It is also important to bear in mind that CIL is already adopted in Redbridge and the proposed increase in CIL only accounts for 1.03% of development costs.

8 In summary, the evidence and range of data is entirely insufficient to support the PDCS and new proposed CIL rates. Even the evidence stated highlights the severe viability constrains of delivering high density and high-quality development (which is envisioned in Investment and Growth Areas). The CIL rates proposed will have a clear and significant viability impact on sites identified for high-density development. It will thus undermine the delivery of the Council’s vision highlighted in the Redbridge Local Plan and importantly prevent the accelerated delivery of housing and particularly affordable housing in the borough.

The claim that the proposed CIL rates will have a “clear and significant impact on sites” does not stand up to any level of reasonable scrutiny. As noted previously, the increase in CIL from adopted levels accounts for just 1.03% of development costs. Furthermore, if this increase cannot be absorbed through a reduction in land value, a modest change to affordable housing percentage (2.1%) or tenure split (60/40 to 51/49) could fully mitigate the increase in CIL.

9 The Evidence Report has made assumptions to the value which open market units can achieve. For example, they demonstrate that Site 12 requires a sale value of £6,775psm to fund the proposed £175psm CIL rate. We consider that the assumptions made in regard to sales values far exceed the current market. Full and detailed comparable evidence should be included within the Evidence Report to support the sales values assumed and adopted for the analysis. Furthermore, if a range of open market evidence is being used to test the viability sensitivity (as shown in Tables 6.6.1 to 6.6.5), it would appear incongruous to not also consider a range of construction cost levels, since the sales evidence covers various developments and their respective finishes and price points.

As noted in the report, the sales values are informed by the Molior database which is a publicly available subscription service. Specification does generally not change within the price range in the viability study. If some areas of the borough were achieving values in excess of £1,000 per square foot, we accept that there might be an argument for alternative specifications.

10 Paragraph 4.11 of the Evidence Report states that the methodology has adopted build costs from the RICS Building Cost Information Service (BCIS). It sets a building cost of £2,140/ sqm for ‘high density flats’.

The approach followed complies with the July 2018 PPG which requires LPAs to adopt standardised inputs for viability assessments, including BCIS.

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Access Self Storage

Comment BNPPRE response

This crude assumption is considered unsatisfactory. Whilst BCIS is a helpful indicator for simple projects, it is not reliable for larger multi-phased projects. This is especially significant given the general scarcity of large scale, high density comparable developments. It is unreasonable to place too greater reliance on BCIS, rather than consider elemental cost plans that provide a higher level of detail. By adopting BCIS costs, the Council take the risk of underestimating construction costs for the larger higher-density schemes, which are envisioned to deliver a large proportion of future housing in the borough. The build cost is an important and critical assumption that underpins the viability and deliverability of high-density developments in the borough. The true construction cost of a building will significantly vary depending on the height of the proposal, the design quality, and site-specific constraints. The stated £2,140/ sqm construction cost fails to reflect the true cost of construction for high density development and tall buildings, that are envisioned in the Local Plan to ensure the Council can meet its housing targets. For example, the expected build cost to construct 1-17 Station Road exceeds £3,500/ sqm. The expected building cost for Recorder House is also circa £3,000 /sqm and we are aware of a further example of a 25 storey tower in Ilford where the construction costs are also circa £3,000/ sqm. These examples of high-quality and high-density development on identified housing sites would be unable to support any affordable housing and would become unviable with the proposed revised CIL rate. This would force the design quality of the development proposals to be significantly reduced and the standard of the accommodation undermined, or more likely prevent any residential development coming forward. Finally, it is unclear why the impact of a range of sales values has been considered within the Evidence Report (for example in Table 6.6.5), but only one crude build cost assumption has been included in the analysis. Construction costs have consistently risen in recent years and it is widely expected that there will continue to be build cost inflation. There is also a clear link between increased sales values and higher build costs, as the specification of residential home increases.

Furthermore, we have applied the ‘upper quartile’ BCIS costs with a range of additional costs including external works, sustainability allowances and contingencies. These comments fail to reflect the additional costs that have been applied to the base cost. £2,140 per square metre is the base cost only. The costs on typology 36 equate to £2,774 per square metre. We cannot take account of vague assertions of costs on schemes without seeing any supporting data. In contrast, BICS is based on actual tender prices for schemes that have been constructed, which is why this is a preferred data source identified by the PPG.

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Access Self Storage

Comment BNPPRE response

Given the importance of construction costs as an input in the appraisal model, it is requested that both a higher build cost needs to be assumed as the ‘base case’ as well as a range of build costs tested to better understand the viability impact of the PDCS on high density development.

11 It is noted that there is a sample appraisal example in Appendix 4 of the Evidence Report. This reviews a ‘low density’ scheme with flats and houses. The appraisal includes a gross to net adjustment for flats of 85%. This residential efficiency level is only achievable for simple low scale residential developments. The efficiency level will be significantly lower for high density development and tall buildings, and for any mixed-use schemes on constrained sites. The currently assumed gross to net adjustment for ‘high density’ development should be stated and a detailed appraisal of this form of high density development needs to be included and consulted on for comment.

85% net to gross is an entirely reasonable efficiency for a low rise flatted scheme. It is unclear why the representation has not referred to the details of the other schemes in Appendix 2, which show a significant range of building efficiency (as low as 77% for high density schemes).

12 Financial viability is an important and challenging issue in the Borough. This is evidenced by recent developments and planning applications in the area, whereby high-density schemes have included very low levels of affordable housing provision. Of particular note, planning application 4499/15, was allowed on appeal as 6% and was considered the maximum reasonable amount of affordable housing by the Planning Inspector.

This was an unusual scheme with a very high existing use value (a Sainsbury’s Supermarket) and is unlikely to be repeated. However, the comments above regarding the impact of CIL on this and other schemes apply equally to the Sainsbury’s scheme. Setting a zero CIL would not have increased the amount provided from 6% to 35% (it might possibly have increased from 6% to around 8%).

13 The Council is seeking to harness the benefits of the introduction of Crossrail and accelerate housing delivery around key transport nodes. The Local Plan directs tall buildings and higher density development to identified Growth Areas to delivery this housing strategy.

To an extent the economics of such developments will dictate whether or not they come forward. As already noted, the proposed increase in CIL will be a very small factor in this decision making process.

14 The ‘key findings’ stated in the Evidence Report need to be interrogated and challenged. These are considered below. 1) It states that “our testing of alternative CIL rates indicates that relatively significant changes could be accommodated without adversely impacting on viability to a sufficient degree to impact on land supply.” The Council has a poor past performance in housing delivery and there is an urgent and growing need for affordable housing. The introduction of Crossrail provides a substantial opportunity to accelerate housing delivery through the introduction of high density and high-quality development near to transport nodes in accessible locations. The Evidence Report has not considered the viability impact of the proposed CIL rate on very high-density development

There is no correlation between alleged “poor past performance in housing delivery” and the introduction of CIL in 2010. Other points are addressed previously.

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Access Self Storage

Comment BNPPRE response

(above 400 dwellings per hectare). The Evidence Report has shown that the vast majority of ‘high density’ developments considered could not support the stated CIL rate AND deliver high levels of affordable housing. Even with 0% affordable housing, the evidence demonstrates that a rise in sales values is needed for high density development to support the proposed CIL rates. Therefore, the substantial rise in the CIL rate from £70/sqm + indexation to £175/ sqm will have a substantial adverse impact on viability. This will have a fundamental impact on the Council’s ability to implement its Local Plan and increase housing delivery.

It is highly misleading to suggest that the Council is proposing to increase its CIL from £70 per square metre. The prevailing rate is £103 per square metre.

15 2) It states that “developments in Zone B will benefit from the opportunities derived from Crossrail Services, which will enable developers to benefit from increased density and higher sales values”. The viability impact of the PDCS needs to be based on today’s costs and values, rather than a perception that sales values will increase. Notwithstanding this, whilst higher density development may result in higher sales values, it will also most likely result in increased build costs. The use of a single BCIS build cost assumption for ‘high density development’ is not appropriate and the figure of £2,140/ sqm does not reflect the current construction cost for high density development for buildings of 25+ storeys. The build cost is a fundamental element of the viability appraisal and should be informed through evidence of recent real-life examples in the borough. A sensitivity analysis should also be undertaken (as has been for sales values) to ensure the full possible effects of the proposed CIL rate are understood.

Proposed increases in CIL associated with new rail infrastructure have been accepted in other charging schedules in London. For example, LB Southwark reviewed their charging schedule on the basis of the extension of the Bakerloo Line through the Old Kent Road area and this was accepted at examination. Furthermore, the BLE is only at the early planning stages, whereas Crossrail is constructed and with a relatively clear programme for delivery. Build costs have been addressed earlier. The PPG requires a typology approach to be adopted. In any event, applying CIL to “real-life” examples would show the same impact of the proposed CIL as any of the typologies.

16 3) It states“the increase will have a modest impact on affordable housing levels that can be delivered”. The evidence provided does not support this finding. Even with the construction costs adopted, tables 6.6.1 to 6.6.5 demonstrate that for high density development, either a growth in sales values or a reduction of affordable housing is necessary to support the proposed CIL rate.

If the increase in CIL cannot be absorbed through a reduction in land value, a modest change to affordable housing percentage (2.1%) or tenure split (60/40 to 51/49) could fully mitigate the increase in CIL. This, in our view, is modest.

17 4) It states that “The Council cannot seek to prioritise securing affordable housing to the exclusion of securing funding for infrastructure and vice versa, In our view, the proposed rates strike this balance appropriately”. The Local Plan sets out an ambitious strategy for growth and delivery of housing through high density development. It is evident that increasing the delivery of affordable housing is a particularly important priority for the

It is important to unpick the assertions here. Firstly, the suggestion that the proposed increase in CIL will make high density schemes unviable: the proposed increase amounts to 1.03% of development costs. Given that build cost inflation runs at higher levels, it is unreasonable to

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Access Self Storage

Comment BNPPRE response

Borough. There is a significant risk that high density development will become unviable and undeliverable with the proposed CIL rate. There is a risk that this form of development could then not viably support any affordable housing. The implementation of the Local Plan and its key objectives will therefore be unduly threatened by the significant increase in CIL rates proposed in the PDCS. Therefore, we do not agree that the proposed CIL rate strikes the correct balance.

suggest that such a small additional cost would have the effect alleged by the representation. Secondly, the impact on affordable housing: as noted previously, if the increase in CIL cannot be absorbed by a change to the land value, a change in affordable housing of 2.03%, or a change in tenure mix from 60/40 to 51/49 would fully mitigate the increase in CIL.

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Moda Living Limited

Moda Living Ltd

Comment BNPPRE response

1 Moda is a specialist investor, developer and operator of best-in-class, professional build to rent communities. Creating the UK’s leading rental brand, with a growing pipeline of nearly 8,000 apartments located in high profile city centre locations, it is leading the way. Moda has recently secured a major development interest within a prominent area of Ilford, which has been a longstanding target for regeneration by the LBR.

2 Moda is concerned that the CIL PDCS will failure [sic] to demonstrate that it has met the essential requirements of CIL Regulation 14. Specifically, it is of major concern that the proposed residential rate for Charging Zone B within the CIL PDCS will prevent or delay development of key regeneration sites and will pose a threat to the delivery of the Redbridge Local Plan 2015 – 2030 (“the Local Plan”). Resultantly, the CIL PDCS will not “strike an appropriate balance” between funding infrastructure and economic viability across the charging area.

3 The differences between the BTR investment, delivery and operating model and more traditional forms of housing are further recognised by Government through its exemption from paragraph 64 of the draft NPPF.

Paragraph 64 of the draft NPPF relates to exemptions for small schemes of under 5 units and to the application of Vacant Building Credit. It is unclear how this relates to major developments of the type envisaged by Moda Living. It is possible that Moda’s agent (Turley) had intended to refer to the July 2018 NPPF (not the draft) which relates to the requirement to provide 10% home ownership as part of the overall affordable housing requirement. Clearly a rented scheme should not be required to provide any of the affordable housing as housing for home ownership, as this would not be compatible with a rented development. A proper reading of the NPPF does not support the implied claim that Turley are seeking to make.

4 Policy H13 confirms that the affordable housing offer can be provided solely as Discount Market Rent (DMR), of which 30% should be provided at London Living Rent (LLR) with the remainder at a ‘range of genuinely affordable rents’ to be agreed with the Borough.

The Council is aware of this policy.

5 However, presently, the CIL PDCS fails to recognise BTR as a distinct asset class within the residential development sector. Instead, the CIL PDCS sets a

BNP Paribas Real Estate have appraised a range of BTR schemes across the capital, the vast majority of which have

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Moda Living Ltd

Comment BNPPRE response

single rate of £175/m2 for all residential development across Charging Zones A and B. Consequently, BTR development would be subject to the same charging rate, and CIL liability, as traditional ‘build-to-sell’ residential development.

been forward funded. These funding arrangements, combined with a consensus on a lower profit margin in comparison to build for sale schemes, results in no material difference in viability. We would also point out that across the capital, there are no adopted charging schedules which apply different rates of CIL for BTR schemes than the rates applied for all residential development.

6 The CIL VR is itself relatively dated, having been prepared in early 2018 and finalised in April 2018. As a result, it pre-dates publication of the adopted NPPF, updated PPG (on Viability and BTR) and publication of the draft New London Plan (August 2018). As a result of the evolving policy climate, as well as the softening of the London residential market in the intervening period, it is highly questionable as to whether it constitutes robust up-to-date available evidence, given the delay between its preparation and publication of the CIL PDCS for consultation.

The new NPPF and PPG do not result in any changes to the approach undertaken. If anything, they emphasise the need for the planning system to prioritise the needs of communities over those of developers and landowners. The emerging London Plan policy regime is already reflected. Land Registry data for Redbridge indicates that sales values have remained relatively flat over 2018/19 (average prices: April 2018 - £412,090; February 2019 - £414,315). Furthermore, the HomeLet Rental Index published in March 2019 indicates that average private rents increased by 2.8% between March 2018 and February 2019.

7 Moreover, the CIL VR contains only passing reference to the BTR sector – despite the presence of several pioneering permitted schemes in LBR and the potential for the sector to contribute to high density regeneration as envisaged within the Local Plan. The CIL VR provides a brief ‘private rented sector market context’ on page 9.

See response to point 5 above

8 However, this fails to translate into the viability assessment of any development typologies tested on the basis of a high density BTR financial model. It is therefore wholly untested as to how the proposed CIL PDCS rates will impact on BTR development

See response to point 5 above

9 It is evident that national policy and guidance, as well as that published by the GLA, provides for an enhanced status of BTR within the planning system, including its promotion and treatment within local planning policy and in identifying the specific dynamics of the BTR model in preparing viability

It is unclear what the respondent means by “enhanced status”. We are not aware of any policy or guidance that prioritises BTR over build for sale.

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Moda Living Ltd

Comment BNPPRE response

assessments for Plan-making, CIL-setting and site-specific (decision making) purposes4. Indeed, numerous Local Authorities in London and across the wider South East region are now incorporating BTR development as a specific typology within Local Plan and CIL viability assessments.

We are not aware of which authorities in London have adopted charging schedules which apply different rates of CIL to BTR schemes. In any event, see response to point 5.

10 Residential Ground Rent Investment Revenue The CIL VR includes capitalised ground rent as investment revenue arising from flatted development within relevant residential typology appraisals. The ground rent is set at £300 per annum per open market unit, which is capitalised at a yield of 4.5%. This generates an average revenue stream of £6,667 per open market unit. It is considered that this now represents a highly uncertain income stream, which is unreasonable to incorporate within Local Plan and CIL viability assessments. Following the publication of the Government’s document ‘Tackling unfair practices in the leasehold market: Summary of consultation responses and Government response’ in late December 2017, there has been a shift in investor/fund perception of investment returns/risk arising from the anticipated enactment of legislation to set ground rents on newly established leases of flats at a peppercorn (zero financial value) rate. This has also been reflected in mortgage lenders willingness to fund loans on new residential developments (houses or apartments) with leasehold structures incorporating ground rents. In October 2018 the Government subsequently published its proposals within a consultation titled ‘Implementing reforms to the leasehold system in England’. This reiterated the Government’s commitment to reducing ground rents on new leases to a ‘nominal’ sum. Specifically, the Government proposes to cap ground rents at £10 per unit per annum in perpetuity (i.e. for the whole term of the lease) for all newly created leases following the passing of the relevant legislation. The Government aims to

Although the October 2018 consultation indicates that legislation may be forthcoming at some point in 2021, there is no certainty that this will come forward at this or indeed any point in the future. Ground rent auctions are still achieving very low yields, well below the 4.5% assumed in the VS. If limits on ground rents are introduced, there is potential for marginal increases in houses prices as a result of improved affordability. Even if this does not materialise, the capital value of ground rents amounts to just 1.3% of GDV and this is not material to the outcome. With regards to the sector that the respondent is interested in (i.e. BTR schemes), no leases are granted in any event and ground rents do not apply.

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Moda Living Ltd

Comment BNPPRE response

introduce the relevant legislation as soon as possible, with mid-2020 considered the earliest date. No transitional period is proposed. As a result, it is considered that the inclusion of a revenue stream of £6,667 per open market unit will vastly overstate the prospective revenue to be generated by ground rent investment sale in flatted development. It is recommended that the CIL VR re-runs the appraisals for flatted development typologies to remove ground rent investment revenue in order to provide a more realistic assessment of financial viability.

11 It is noted that the CIL VR makes reference to the inflation of London Affordable Rent by CPI plus 1% within appraisals – effectively assuming a 2019/20 position. Firstly, this inflation will take the affordable housing revenues out of step with the ‘present day’ revenues and costs for other appraisal inputs, which will skew appraisals and potentially generate misleading results. Secondly, it is unclear whether the inflation rate has been applied in perpetuity within the appraisal cashflows (i.e. assuming that the inflation will occur until the point of completion/disposal to an RP). This would be further misleading. Clarification is requested. It is considered that inflation should be removed altogether.

This is incorrect - when RPs bid for affordable housing on schemes coming forward under the new charging schedule, rents will increase by CPI plus 1%. RPs structure their offers to include real terms inflation on rents and real terms inflation on costs. The approach adopted reflects how the RP sector operates.

12 It is noted that at 4.11 the CIL VR confirms it has placed reliance on RICS BCIS to provide base construction costs for development typologies. It is noted that the ‘medium density’ flatted cost is higher than the ‘high density’ flatted cost, which is unexpected. Normally, higher density development would be assumed to be associated with taller buildings – with construction costs generally higher as a result. Whilst the CIL VR references RICS BCIS, there are several issues arising in respect of reliance: • There is no copy of the RICS BCIS data (even in summary) to provide proof of the accuracy of the figures reported. • The base date for the costs utilised are not stated within reporting. It is therefore impossible to establish whether the costs and revenues are determined over a consistent timescale. • It is unclear how the data has been interpreted, and utilised, in order to be applied to taller buildings.

The BCIS base data for low rise flats is £1,694, medium rise £1,823 and taller buildings £2,140 per square metre. These are all ‘upper quartile’ costs and take into account the additional costs of higher density development. The BCIS data for the final version of the study was downloaded on 2 May 2018, based on updated data 28 April 2018. This is rebased to Redbridge with an index of 113.

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It is requested that clarification is provided on the above matters.

13 Section 106 Costs The CIL VR states that an allowance of £1,500 per residential unit has been incorporated into appraisals to reflect the cost of residual Section 106 planning obligations sought alongside CIL. On the basis that CIL has been charging in the Borough for several years, it is expected that LBR has a robust evidence base on sums collected on schemes over the period since the existing CIL Charging Schedule has been adopted. It is requested that this evidence is provided in order to ascertain whether the sum of £1,500 per residential unit, which appears as a relatively nominal sum, is reflective of the scale of planning obligations agreed on schemes granted permission in recent years in LBR.

The Council is satisfied that its assumption of £1,500 per unit for Section 106 is reasonable.

14 Exceptional Costs It is noted that the CIL VR states at paragraph 4.29 on p.24 that, whilst recognising that “exceptional costs can be an issue for development viability on previously developed land”, the CIL VR totally excludes any allowance for abnormal development costs on brownfield land. The CIL VR proceeds to suggest that an ‘average’ level of costs for abnormal ground conditions is incorporated into the RICS BCIS data (and hence the cost rates applied). However, there is no explanation provided as to the level of abnormal cost allowance reflected in the RICS BCIS data. It is therefore impossible for stakeholders to determine if this is appropriate and reasonable. Passing reference to inclusion of a notional allowance within RICS BCIS is inadequate as the figures have not been provided for stakeholder review, and therefore this fails to represent appropriate available evidence. It is requested that the abnormal cost allowance reflected within RICS BCIS costs is transparently provided to stakeholders. Moreover, on the basis that the Local Plan focuses the majority of development on brownfield regeneration sites, it is strongly recommended that consideration is given to making appropriate and reasoned allowance for the costs of abnormal ground conditions within the CIL VR.

The approach to exceptional costs is set out in paragraph 2.9 – this approach has been widely accepted across the capital and we propose no change. Furthermore, the July 2018 PPG (which the respondent was keen to draw attention to earlier) states very clearly that the implications of abnormal costs should be reflected in benchmark land values.

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15 Benchmark Land Value It is noted that the CIL VR adopts a ‘EUV plus premium’ approach to setting benchmark land values (BLV) for the typologies tested. It is also noted, at paragraph 4.30 on p.24 that the alternative use value (AUV) of sites will, in specific instances, be a relevant consideration in setting the BLV – although this is not reflected in the methodology applied within the CIL VR. Whilst the use of the ‘EUV plus premium’ methodology is broadly consistent with GLA’s Affordable Housing and Viability SPG (2017) and the Government’s PPG for Viability (2018) analysis of Appendix 2 of the CIL VR confirms that BNPPRE has applied a flat rate premium of 20% to the EUV for all site typologies in establishing the BLV. This is inconsistent with the judgement handed down by Holgate J in Parkhurst Road Ltd v Secretary of State for Communities and Local Government and Anor (2018) in which Holgate J confirms that application of an arbitrary premium in excess of the EUV is unsatisfactory in reflecting the workings of the market, and which has been subsequently reflected in PPG for Viability. This states that the BLV should incorporate a premium that provides a reasonable incentive for a land owner to bring forward land for development while allowing a sufficient contribution to comply with policy requirements. Importantly, the premium should be informed by market evidence and the reasonable expectations of local landowners. It is unclear from the CIL VR whether the process of setting the premium at 20% in excess of the BLV for all development typologies has reflected the iterative process required within PPG for Viability. No market evidence is presented within the CIL VR in order to demonstrate that the BLVs are reasonable and realistic. It is requested that such evidence is provided in order to demonstrate that the methodology for setting the BLVs within the CIL VR is sound and based upon appropriate available evidence for stakeholder review.

The Council receives viability assessments for a range of developments across the borough that have been submitted for planning. The premium of 20% adopted in the Local Plan VS is widely adopted in scheme-specific assessments. Using prices paid for sites to inform a premium would be misleading as they are based on a range of assumptions that are ‘personal’ to the bidding party; they are not based on the ‘standardised’ inputs that the PPG requires to be used for Local Plan viability assessment. Furthermore, market transactions are often based on schemes that do not reflect the full range of policies required in the Local Plan.

16 Construction & Sales Programme The CIL VR is unclear in respect of the following: • the assumptions made regarding construction periods for various typologies – particularly for larger, higher density, flatted development; and

The construction and sales periods are clearly set out in Appendix 2.

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• the assumptions made regarding the volume of pre-sales (i.e. off plan sales) and associated receipts. It is noted that an assumption of 6 units per month is made in respect of development post-completion. However, no evidence has been put forward to support this assertion, which is considered bullish in the current market at the time of publication. It is requested that clarity is provided in respect of the above points, and that local market evidence is provided to support the sales rate of 6 units per annum as utilised within the CIL VR.

When taking account of off—plan sales, a sales period of 6 units per month reflects normal market practice in London.

17 Results for High Density Apartment Development Having reviewed the results tables in chapter 6 of the CIL VR, it appears that the high density flatted development typologies (6, 7, 8, 34, 36), and a number of medium density flatted development typologies, cannot viably provide the Local Plan policy target of 35% affordable housing whilst meeting the proposed CIL PDCS rate within Zones A and B. This being the case even at the highest sales value rate tested (of £7,158/m2), which exceeds the average sales values in Redbridge (as shown in Figure 2.14.1) in all areas of the borough with the exception of South Woodford and Snaresbrook. It is unclear how the CIL VR determines that an appropriate buffer is in place, at a CIL rate of £175/m2, which will enable the scale, typologies and volume of development to be viably delivered without placing the Local Plan at risk. This is considered to be particularly important in the context of LBR given the CIL VR highlights that permitted schemes have only delivered an average of 22% net units as affordable housing over the last five years. Crucially, this was under the adopted CIL Charging Schedule rate, which equated to between £70/m2 and £103/m2 during the period. There is a significant risk that an increase in CIL rates to £175/m2, as proposed in the CIL PDCS, will constrain and delay regeneration and development to the detriment of delivery of the Local Plan. At paragraph 6.11 the CIL VR suggests that the £175/m2 rate should be applied to development in Zone B due to the prospective beneficial impact of Crossrail

This is an issue with the economics of tall buildings, not CIL. Even if CIL is set at zero, these schemes would not be able to provide 35% affordable housing. The Council accepts that there is a trade-off between affordable housing and CIL, but it cannot set its CIL rate on the basis that every scheme will meet the full 35% target. To do so would result in schemes not generating 35% AH but then also not generating income to fund essential supporting infrastructure. In the event that the proposed increase in CIL (alongside Mayoral CIL) cannot be absorbed through a reduction in land value, affordable housing would need to change by only 2.1% to accommodate the proposed increase in Borough CIL (and the recently adopted increase in Mayoral CIL). Alternatively, where viability issues emerge, the tenure mix of the affordable housing could change to preserve the overall percentage – a change in tenure mix from 60% rent and 40% intermediate to 51% rented and 49% intermediate could offset the proposed increase in CIL. Proposed increases in CIL associated with new rail infrastructure have been accepted in other charging schedules in London. For example, LB Southwark reviewed their

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services. However, there is a lack of evidence or justification to support this assertion.

charging schedule on the basis of the extension of the Bakerloo Line through the Old Kent Road area and this was accepted at examination. Furthermore, the BLE is only at the early planning stages, whereas Crossrail is constructed and with a relatively clear programme for delivery.

18 Growth Scenario Chapter 4 of the CIL VR makes reference to a ‘growth scenario’, with the assumptions set out in Table 4.3.1 on p.17. Given the present uncertainty over the UK economy, and housing market, it is considered misleading to present such a scenario – particularly where this simply projects an annualised level of growth in perpetuity. The property market, and wider economy, is inherently cyclical. Hence, a projection of ongoing growth will be misrepresentative and risks setting unrealistic expectations. It is recognised that BNPPRE caveat the growth scenario analysis as ‘indicative’, yet it is considered that no weight should be applied to this analysis given its limitations.

We do not rely upon the growth scenario for setting rates. This is made clear in the text of the report. We would draw attention to the purpose of the report, which is two fold – to test emerging plan policies which will be in place for a 15 year period, but also to test rates of CIL, which have a shorter lifespan. It is clearly reasonable to sensitivity test for the purpose of long term Local Plan policies. No weight is applied to the results for CIL rate setting purposes!

19 The NPPF confirms the following at paragraph 57: “All viability assessments, including any undertaken at the plan-making stage, should reflect the recommended approach in national planning guidance, including standardised inputs, and should be made publicly available.” 1.58 At present the CIL VR provides only summary tables setting out the outputs of the appraisals undertaken. Only a single ‘sample appraisal’ is provided within Appendix 4. This falls short of the transparency advocated within the NPPF and PPG for Viability. 1.59 Preferably all appraisals would be published for stakeholder review. However, in the interests of expediency, it is requested that at least one appraisal is published for each site/scheme typology tested (as set out in Table 4.1.1). This will include the BTR appraisal requested within the previous section of this representation document.

The NPPF requires that standardised inputs should be made available, which the report does. The respondent has all the data they require to provide their own appraisals if they wish to do so.

20 This representation document has identified a number of fundamental concerns in respect of the viability evidence base underpinning the published CIL PDCS.

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This, in turn, brings into question the soundness of the CIL PDCS itself, and its compliance with adopted national policy, relevant guidance and the CIL Regulations 2010 (as amended). It is requested that LBR consider the issues identified and provide responses to each, as well as instructing the updating and revisiting of the underpinning viability evidence to resolve any identified shortcomings. Should this give rise to justification for amending the CIL PDCS rates, these amendments should be formally consulted upon (at the CIL DCS stage), including any additional supporting viability evidence (justifying the modifications), prior to LBR submitting the CIL DCS to PINS for independent examination.