development economics a practical case study
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Development Economics a practical case study. Kathleen Dunmore Jo Harrison Gary Tucker Paul 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 - PowerPoint PPT PresentationTRANSCRIPT
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?