Setting the developer return in a viability appraisal

Developer profit 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 that choice along with everything else. National planning guidance says that for plan making an assumption of 15 to 20 per cent of gross development value may be considered a suitable return, with alternative figures where the evidence supports them according to the type, scale and risk profile of the development, and a lower figure where affordable housing delivery guarantees an end sale at a known value.

That range is the anchor every reviewing surveyor starts from. Sitting outside it is allowed. Sitting outside it without a reason is not.

Why profit is an input rather than an outcome

A residual appraisal deducts costs, finance and profit from gross development value to arrive at a residual land value, which is then compared with the benchmark. Profit enters as an assumption on the cost side of that calculation.

Set profit high and the residual falls, which strengthens an argument that the scheme cannot afford its policy obligations. Set it low and the residual rises. The relationship is direct, and a reviewer knows it, so the profit assumption gets the same scrutiny as the land value.

A Viability Assessment that states a profit percentage without explaining the risk it compensates for invites the reviewer to substitute their own.

Return on cost and return on gross development value

Two conventions, and they are not interchangeable.

Return on gross development value expresses profit as a percentage of the scheme's sales value. Return on cost expresses it as a percentage of total development costs excluding land, or sometimes including it. The two produce different numbers from the same appraisal, and a scheme quoted at 20 per cent on gross development value is showing a higher return on cost than 20 per cent would suggest.

State which you are using in the first paragraph of the profit section, and show the other alongside it. Reviewers convert anyway, and doing it for them removes an argument.

Adjusting the return for scheme risk

The return compensates for risk, so the justification has to describe the risk.

Factors that support a return towards the upper end of the range, or above it:

• Long build programmes with sales exposure over several years.
• Complex sites with remediation, demolition or basement construction.
• Single-phase delivery with no ability to pause.
• Untested product or location, where comparable evidence is thin.
• Schemes dependent on infrastructure delivered by others.

Factors that support a lower return:

• Pre-sold or forward-funded units with a contracted purchaser.
• Short programmes on cleared, serviced sites.
• Phased delivery that allows the developer to stop.
• Strong, evidenced comparable values in an established market.

Say which of these apply to this scheme, in this location, and drop the ones that do not. A generic risk paragraph that could describe any development is worth nothing.

Affordable housing units and a lower return

The guidance is explicit that a lower return may be appropriate where affordable housing delivery guarantees an end sale at a known value and reduces risk. That is the basis for applying a blended profit across the scheme.

The mechanics matter. Affordable units transferred to a registered provider under a contracted arrangement carry sales risk close to zero: the price is agreed, the purchaser is committed, and there is no marketing period. Applying the market housing return to those units overstates the profit requirement and understates what the scheme can afford.

A blended figure hides this. Present the return separately for market and affordable units, then show the blended result, so the reviewer can see the composition. An Affordable Housing Statement that describes a contracted registered provider deal supports the lower figure directly.

Note: where the affordable offer is a commuted sum rather than on-site units, the risk argument changes and the profit treatment should change with it.

Finance costs and how they interact with profit

This is where double counting hides.

Finance costs compensate the lender for the time value of money and for credit risk. Profit compensates the developer for development risk. They are different things, and they overlap at the edges, particularly where an appraisal applies a high profit percentage and also models an expensive debt package with a long facility.

Two checks a reviewer will run. Whether finance has been calculated on a cash flow basis, reflecting actual drawdown and repayment, or applied as a flat percentage of costs, which usually overstates it on a phased scheme. And whether a contingency allowance sits alongside a risk-adjusted profit, which can be a double allowance for the same uncertainty.

Contingency is not automatically double counting. A defined allowance for known unknowns on a specific site is legitimate. A 5 per cent blanket contingency plus a profit at the top of the guidance range on a straightforward site is harder to defend.

Sensitivity testing the assumption

Run the appraisal at three profit levels and show the effect on the residual land value and on the affordable housing the scheme can support. Then run it at three value levels and three cost levels.

The output is a small table, and it does more for the credibility of an assessment than another page of narrative. It shows the reviewer that you understand where the conclusion is fragile, and it makes the negotiation about a range rather than about a single contested number.

Where a scheme is marginal across the whole range, say so. Where it only fails at the top of the profit range, expect the reviewer to notice that and to ask why the top was chosen.

What a reviewing surveyor will challenge

The recurring challenges, in the order they arrive:

1. A return above 20 per cent of gross development value with no site-specific justification.
2. A blended profit that conceals a market housing return well above the range.
3. Return on cost quoted without the equivalent on gross development value.
4. Finance modelled as a flat percentage rather than from a cash flow.
5. Contingency and risk-adjusted profit both claimed for the same uncertainty.
6. A risk narrative that describes the market generally rather than this scheme.

Answering all six in the assessment itself removes most of the review process. That is worth doing, because review costs are usually recharged to the applicant.

Illustrative example: a 90-unit scheme with 30 per cent affordable housing contracted to a registered provider, presented at 17.5 per cent of gross development value on the market units and a materially lower figure on the affordable units, with the blended result shown alongside. The reviewer accepted the split and the argument moved to build costs. This example is illustrative.

One honest uncertainty: there is no settled convention on the exact return that should apply to affordable units, and figures used in practice vary. Evidence the contracted position rather than citing a norm.

PlanScope drafts the viability and affordable housing documents that carry these arguments, structured to UK planning policy, with the appraisal itself left to a qualified surveyor. Councils expect a suitably qualified author for viability work, and professional review is strongly advised. Browse the full report list or start from the PlanScope home page.

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.