Affordable housing viability
An Affordable Housing Viability Assessment (AHVA) is an appraisal of the costs, values and profitability anticipated with delivering a proposed development. Its purpose is to provide the Local Planning Authority with an opinion on the viable level of affordable housing contribution that can be funded from a scheme whilst still earning a reasonable profit. We take you through the fundamentals of affordable housing viability.
What is a financial development appraisal?
A financial development appraisal considers the costs and values associated with a particular development in order to assess the profitability of a scheme. It can be a high-level assessment, and is often used at an early stage of the development process to identify whether a particular design proposal would be feasible at a site.
What is a viability assessment?
Undertaken to assess the profitability of a development, a viability assessment is a report which expands on the findings of a financial development appraisal to explain the cost implications of purchasing land and building out a scheme. These costs are then considered in the context of the value of properties at completion. Any surplus identified would be the potential profit for a developer.
Â
What is an Affordable Housing Viability Assessment?
Undertaken to assess the profitability of a development, an Affordable Housing Viability Assessment (AHVA) considers the costs and values associated with a housing development. The assessment is usually requested by a Local Planning Authority (LPA) to evaluate whether the developer can afford to provide any affordable housing as part of the scheme. Key components include:
- The existing use value (EUV) – what is the site currently worth?
- The gross development value (GDV) – what will the development be worth when it’s completed?
- The build costs (including all professional fees, marketing and legal costs)
Â
What if the profit is higher than 15-20%?
To determine whether a scheme is viable, the costs (including the land value) are deducted from the GDV. Any identified surplus equates to the profit available to a developer at completion. Usually for a scheme to be considered deliverable, this level of profit will be between 15-20% of the GDV.
The LPA will likely want the developer to provide either on-site affordable housing or provide a financial contribution towards this provision elsewhere. If the result is negative, then the development cannot reasonably be expected to contribute towards affordable housing.
When do you need an Affordable Housing Viability Assessment?
Paragraph 63 of the National Planning Policy Framework (NPPF) states that the provision of affordable housing should not be sought for residential developments that aren’t major developments (10 or more dwellings), other than in designated rural areas (where policies may set out a lower threshold of 5 units or fewer).
Some Local Authorities, however, have been granted special dispensation to request affordable housing on smaller sites. There are also instances where a Local Planning Authority may consider your site to be aggregate development (see below). If this is the case, they may require the viability of the ‘whole’ site to be re-assessed. This can have significant implications on a development. In these circumstances, it’s always worth checking the practicality. So, if you’re unsure, we have considerable experience in the area and would be happy to advise.
Â
What is aggregate development?
Three criteria are used to determine whether a site should be considered as aggregate development, for the purposes of applying an affordable housing requirement:
- The ownership of the site
- Whether the land could be considered to be a single site for planning purposes
- Whether the development should be treated as a single development
Developers are often surprised to be asked for affordable housing on developments that would usually fall below the affordable housing policy threshold. However, if the proposal takes the total number of houses built over the threshold, even if this is some years later, local authorities are increasingly requiring the viability of the whole development to be assessed.
Â
Explore projects
Get in touch
Your contact information:
All fields are mandatory *
RPS is committed to protecting and respecting your privacy. We will only use your personal information to administer your account and to provide the products and services you have requested. We would also like to contact you about our products and services, as well as other content that may be of interest to you.