Developer return assumptions in planning viability
Set the return and the land value follows. How national guidance frames the range, why affordable units carry a lower figure, and what evidence justifies moving up.
Developer return in a planning viability appraisal is an input, not a result. You choose it, you justify it, and the residual land value falls out of the arithmetic once it is fixed. That is counter-intuitive to anyone used to running a business where profit is what remains at the end, and it is the source of most arguments between applicants and the councils reviewing their assessments.
Planning Practice Guidance on viability sets the starting point. A return in the range of 15 to 20 per cent of gross development value may be considered suitable for market housing when testing plan policies, with a lower figure appropriate for affordable housing because a contracted sale to a registered provider at a known value carries much less risk.
Why the figure has to be argued rather than asserted
Move the return by two percentage points on a scheme of any size and the residual land value moves by a large sum. The reviewer knows this, so a return set at the top of the range without explanation reads as an attempt to depress land value and squeeze out the affordable housing obligation.
The guidance expects a standardised approach so that assessments can be compared. That does not mean one number for every scheme. It means that when you depart from the usual figure, you say why, with reference to the risk this scheme carries that a typical scheme does not.
Profit on gross development value against return on cost
Two measures are in common use and they are not interchangeable.
| Measure | Definition | Where it is used |
|---|---|---|
| Profit on GDV | Profit as a percentage of gross development value | The national guidance measure, used in most plan-wide viability testing |
| Return on cost | Profit as a percentage of total development cost | Common in funding appraisals and in commercial schemes |
| Internal rate of return | Annualised return on cash employed over time | Used for phased and long-dated schemes, and by investors |
Return on cost produces a higher headline percentage than profit on GDV for the same money, because the denominator excludes profit. Quoting a return on cost figure alongside the guidance range invites an unfavourable comparison, so state which measure you are using in the same sentence as the number, every time.
Where a scheme is phased over several years, an internal rate of return may reflect the position better than a single profit percentage. If you use it, run the profit on GDV figure as well, because that is what the reviewer will want to see for comparison.
Different returns for market and affordable elements
The lower affordable housing return exists for a specific reason. Units contracted to a registered provider are sold at a price agreed before construction, without sales risk, sales period or marketing cost, and often with staged payments. The risk the developer carries is construction risk alone.
So splitting the return is normal and expected. A figure at the guidance range for the market units and a materially lower figure on the affordable units is the standard treatment, and applying the market rate across the whole scheme will be adjusted by any competent reviewer.
Tenure matters within that. Social rent, affordable rent, shared ownership and First Homes carry different values and different transfer arrangements, and the split is negotiated rather than fixed, as set out in affordable housing tenure split. The discount mechanics for one of those products are explained in First Homes: the discount and how the obligation works.
Risk profile as the justification
If you want a figure above the middle of the range, evidence the risk. The arguments that carry weight:
- Sales risk on a scheme delivering several hundred units into a shallow local market, evidenced by absorption rates from comparable developments.
- Construction risk on a complex site with deep basements, listed fabric, or work over or adjacent to operational infrastructure.
- Programme risk where delivery depends on a third party, such as a statutory undertaker diversion or a highway agreement.
- Planning risk already realised, which carries less weight than applicants expect, because the appraisal is testing the scheme as proposed.
- Product risk where the scheme is a type with limited comparable evidence in the area.
Arguments that do not carry weight: the developer's internal hurdle rate, the funder's requirement, and general statements about market uncertainty. Reviewers see all three regularly and treat them as assertions.
Where returns and finance costs overlap
This is the technical error that shows up most often. Developer return compensates for risk. Finance cost pays for capital. They are separate lines, and an appraisal that includes both a full finance line and a return calculated on a base that already reflects financing is claiming twice.
Conventional practice in a residual appraisal is to assume the scheme is fully debt funded at a stated rate with an arrangement fee, compute interest on the cash flow, and then apply the developer return to gross development value. If you depart from that, say so and show the workings.
Check also that any contingency, abnormal cost allowance and professional fee percentage are not each carrying a slice of the same risk that the return is meant to cover.
An illustrative example
Illustrative only: a 90 unit scheme with a 30 per cent affordable requirement. The applicant's appraisal applies 20 per cent on GDV across the whole scheme and concludes that only 12 per cent affordable housing is viable.
The reviewer rebuilds it with 17.5 per cent on the market units and 6 per cent on the affordable units, leaves every other input unchanged, and the scheme supports 22 per cent affordable housing. The negotiation then runs on whether the applicant's evidence of local sales absorption justifies moving back towards 20 per cent on the market element.
Nothing else changed. The return assumption was doing all the work.
Presenting it so the review is short
State the measure, the figure, the split between market and affordable, and the evidence, in that order, on one page near the front of the Viability Assessment. Cross refer to the sensitivity analysis showing how the affordable housing outcome moves as the return varies.
Two further points. Viability evidence is expected to be publicly available, so write it for an audience that includes objectors. And where the conclusion is a reduced obligation, the Affordable Housing Statement has to carry the same numbers, including any review mechanism for later stages, which interacts with the cash flow position covered in CIL instalment policies and development cash flow.
Councils expect a suitably qualified author for viability work, usually a chartered valuer working to the RICS professional statement, and professional review before submission is strongly advised. A structured draft gives that valuer a frame; the judgement and the numbers stay theirs.
This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.
Frequently asked questions
What developer return does national guidance suggest?
Planning Practice Guidance indicates that a return in the range of 15 to 20 per cent of gross development value may be suitable for market housing when testing plan policies, with alternative figures appropriate for different development types. A lower return is indicated for affordable housing because a contracted sale at a known value removes sales risk.
Why do affordable units attract a lower return?
Because the risk is different. Units transferred to a registered provider are sold at a price agreed before construction, with no sales period, no marketing cost and often staged payments. The developer carries construction risk but not sales risk, so applying the market rate across the whole scheme overstates the profit requirement and will be adjusted on review.
Is profit on cost the same as profit on GDV?
No. Profit on cost uses total development cost as the denominator and produces a higher percentage than profit on gross development value for the same money. Mixing the two, or quoting one against the guidance range for the other, is a common source of confusion. State which measure you are using in the same sentence as the figure.
Can I use an internal rate of return instead?
For phased or long-dated schemes an IRR often reflects the position better, and investors think in those terms. Run the profit on gross development value figure alongside it, because that is the measure the reviewer will compare against national guidance and against other schemes in the same authority.
How do developer return and finance costs interact?
They are separate. Finance cost pays for capital employed, while the return compensates for risk. The conventional residual appraisal assumes full debt funding at a stated rate with an arrangement fee, computes interest on the cash flow and then applies the return to gross development value. Claiming both a full finance line and a risk-adjusted return base counts the same thing twice.
Sources and further reading
This article is general guidance about the planning system in England and, where stated, the rest of the UK. It is not legal or professional advice. Check your local planning authority’s validation requirements and take professional advice for your specific site.