The residual land value section of a viability assessment

The residual land value section is where a viability assessment either holds up or falls apart. It takes the gross development value of the scheme, strips out every cost of building it and a return for the developer, and reports what is left as the value of the land. That residual figure is then compared with a benchmark land value. If the residual sits below the benchmark, the argument is that the scheme cannot carry the full policy package of affordable housing and planning obligations. Everything in the section turns on inputs that a council's reviewer will test line by line.

What the residual calculation is doing

The arithmetic is simple and the assumptions are not. Gross development value, less construction costs, professional fees, finance, marketing, planning obligations and the developer's return, gives a residual land value.

Here is an illustrative set of figures on a notional 40 unit site, used only to show the shape of the calculation rather than any real scheme:

Move the affordable housing proportion by ten percentage points and that residual moves by a margin larger than most landowners' expectations. That sensitivity is the whole reason councils scrutinise the section, and it is why a viability assessment is one of the report types where a suitably qualified author is expected and independent professional review is strongly advised.

Benchmark land value and the premium argument

The residual figure means nothing on its own. It has to be set against a benchmark land value, and national planning practice guidance is specific about how that benchmark is derived: existing use value plus a premium to the landowner, with the premium reflecting a minimum return at which a reasonable landowner would release the site.

Two mistakes recur. The first is presenting the price actually paid as the benchmark. Guidance is plain that the price paid for land does not justify a reduced level of policy compliance, so an overpayment is the applicant's problem rather than the council's. The second is reaching for alternative use value without doing the work. An alternative use value only counts where that alternative use is itself policy compliant and could realistically obtain permission, and a reviewer will ask for evidence of both.

Existing use value needs to be valued properly. A vacant former office with a leaking roof has an existing use value driven by what it would let for and what it would cost to bring back into use, not by the owner's book value. State the valuation method, the comparables and the date, and say who carried out the valuation.

The premium is where most disagreements settle. Argue it from market evidence of land transactions in comparable circumstances and from the characteristics of this landowner's position, and expect the reviewer to test it against other sites in the borough.

Evidence for gross development value

Values need comparable evidence, presented as a schedule rather than a single average. Give the unit mix, the net internal area of each type, the price per square metre applied and the transactions relied on, with dates and addresses of the comparables and an explanation of any adjustment made for location, specification or new build premium.

Affordable housing values are a separate exercise. Transfer values expressed as a percentage of open market value are convenient shorthand and weak evidence. Where a registered provider has bid, say so, and where the figure is an assumption, describe the tenure split and rent levels behind it. Reviewers will check whether the assumed rents are consistent with the council's own affordable housing policy.

Where ground rents, commercial floorspace or car parking are being valued, set out the yield and the capitalisation method. A value derived from a yield is only as good as the evidence for the yield.

Build costs, abnormals and contingency

Most appraisals take base build costs from a published cost index, adjusted for location and specification, and reviewers accept that starting point. What they test is everything bolted on around it.

Externals and infrastructure are frequently understated. So is the cost of getting to a serviced site on constrained urban land. Abnormal costs, meaning demolition, remediation, piling, retaining structures, utility diversions and archaeology, should each be a line with a source, ideally a quotation or a specialist's estimate rather than a percentage guess. A round percentage for abnormals is the fastest way to lose the argument.

Contingency is a judgement rather than a rule. A figure of around 5 per cent of construction cost is common on new build and higher on refurbishment or conversion, and an assessment that applies a heavy contingency on top of an already conservative cost base is doing the same job twice.

Policy driven costs belong here too. Building regulations standards, the biodiversity gain requirement, fire safety provision on taller buildings and any local sustainability standard all carry cost, and a council will notice if those are included in the costs while the corresponding benefits are absent from value.

Developer return and finance assumptions

National guidance treats a return in the region of 15 to 20 per cent of gross development value as suitable for the market housing element of a scheme, with a lower return appropriate for the affordable element because the risk profile differs. Pick a point in that range and justify it by reference to the risk of this scheme rather than to house policy.

Return on cost appears in plenty of appraisals as well. Be explicit about which basis is being used, because a 20 per cent return on cost and a 20 per cent return on value are different numbers, and mixing them mid report is a common error.

Finance assumptions should state the interest rate, the arrangement fee, the assumed drawdown profile and whether the appraisal assumes the scheme is fully debt funded. Long programmes compound this: a two year build on a phased site carries far more finance cost than the headline rate suggests, and the cash flow should show it.

Sensitivity testing that survives scrutiny

A single point residual tells a decision maker very little. Run the appraisal across a range and present the results as a grid, varying value and cost in steps either side of the base case, and show at what point the scheme supports the policy compliant position.

Test the things that actually move: sales values, build cost inflation, the affordable proportion and tenure mix, the programme length and the benchmark land value itself. Then say plainly which input the conclusion depends on. An assessment that admits its result hangs on a contested benchmark is more persuasive than one that presents a single deficit as a fact.

Where the deficit is real but the market may improve, a review mechanism is often the practical answer, and the drafting of those clauses deserves the same care as the appraisal. That is a topic in itself, covered in the note on late-stage viability reviews and how they are drafted.

When the council brings in its own reviewer

Most authorities instruct an independent consultant to audit the appraisal at the applicant's cost. The reviewer will rebuild the model, substitute their own inputs where they disagree and report a different residual. Two appraisals then sit in front of the officer, and the gap between them is usually traceable to three or four assumptions.

Make that easy to see. Supply the model in a form that can be interrogated, list every assumption in a single schedule with its source, and flag the ones you expect to be disputed. Assessments are normally published in full, so write as though the objectors and the neighbouring landowners will read it, because they will.

The professional standards on conduct and reporting matter here as much as the arithmetic. Who instructed the report, what the fee basis was, and whether the author has any interest in the outcome all belong in the document, a point explored further in the piece on viability assessment competence and RICS standards. Where two appraisals reach an inspector, the one that documented its instructions and its uncertainty tends to fare better, as the discussion of competing viability appraisals at appeal sets out.

PlanScope can draft the narrative structure of a viability assessment from your scheme details and flag the inputs it cannot verify, which a qualified valuer then completes and reviews. Browse the report types index to see where it sits alongside the rest of the evidence base.

This is general guidance, not legal or valuation 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.