How viability changed the affordable offer on a mixed use scheme

A viability affordable housing negotiation is not really an argument about affordable housing. It is an argument about six or seven numbers in a spreadsheet, and whichever side understands those numbers better tends to win. The policy requirement is the starting point, and national guidance is explicit that the price paid for land is not a justification for failing to comply with the development plan. So an applicant who bought at a price that only works at a lower affordable percentage is starting from a weak position, and knows it.

What follows is an illustrative walkthrough of how one of these negotiations runs, and where a review mechanism ends up carrying the weight.

The scheme and the policy requirement

Illustrative example: 120 flats over 900 square metres of commercial floorspace on a cleared brownfield site in an inner urban borough. The adopted local plan sought 35 per cent affordable housing by habitable room, with a tenure split weighted towards social rent.

The application offered 18 per cent, supported by a viability assessment. Nothing about that is unusual, and the gap is where the next nine months went.

Two procedural points set the frame. National guidance says the weight to be given to a viability assessment is a matter for the decision maker. And it expects assessments to be made publicly available, with only narrow exceptions for commercially sensitive material. An applicant planning to argue viability should assume the numbers will be read by objectors.

The viability assessment submitted

The assessment followed the standard residual approach. Gross development value, less build costs, professional fees, finance, contingency, marketing, planning obligations and levy, less the developer's return, gives a residual land value. Compare that with the benchmark land value. If the residual is below the benchmark, the scheme is said not to support the policy requirement.

The inputs that mattered were these.

National guidance suggests that for plan making a return of 15 to 20 per cent of gross development value may be a suitable developer return, while noting this could differ. Applicants routinely cite the upper end. Authorities routinely point at the lower one.

The council's independent review

The authority commissioned an independent review, as most do on anything contested, and the applicant paid for it under the usual arrangement.

The reviewer asked for the appraisal model itself rather than a printed summary, the land transaction documents, the cost plan behind the build cost figure, and the comparable evidence underlying the sales values. That request list is worth anticipating, because an applicant who cannot supply the model invites the reviewer to rebuild it with their own assumptions.

The review took eleven weeks including one round of questions. It is the single largest programme item in a contested viability case, and it sits after validation rather than before, so it eats the determination period rather than the pre-application period.

Inputs that were challenged

Four of the eight inputs moved, and two of them decided the outcome.

Benchmark land value was the main battleground. The applicant's premium above existing use value was set by reference to what had been paid. The reviewer's position was that the premium must be justified by reference to what a reasonable landowner would accept, having regard to policy requirements, rather than by the transaction price. The benchmark came down.

Sales values moved up. The comparable schemes used were older and in a slightly weaker location, and the reviewer substituted more recent evidence.

Contingency and professional fees were both trimmed as percentages, on the basis that the scheme was on a cleared site with no unusual ground risk. That is a common adjustment and it is usually worth conceding early rather than defending.

Developer's return stayed where it was. The reviewer accepted the percentage but applied it to the revised gross development value, which changed the absolute figure.

The combined effect moved the supportable affordable percentage from 18 to 26. Not to 35, and not to 18.

The reduced offer and the review mechanism agreed

Twenty-six per cent was where the negotiation landed, and it only landed there because the section 106 carried two review mechanisms.

An early stage review, triggered if the development was not substantially implemented within two years of permission. The logic is straightforward: a scheme that sits unbuilt while values rise should be reassessed rather than benefiting from a snapshot taken at a low point. The London Plan operates this mechanism explicitly for schemes on its fast track route, and authorities outside London have adopted the same structure.

A late stage review, triggered when a defined proportion of the private units had been sold. Surplus profit above the agreed return is then shared, with the authority's share applied to additional affordable housing or a commuted payment, capped at the policy compliant position.

Three drafting points decide whether a review is worth anything.

1. The trigger has to be objective and datable. Substantial implementation and a stated sales percentage both work. A best efforts obligation does not.
2. The inputs to be revisited must be listed, and the ones that are fixed must be stated. A review that reopens everything becomes a second negotiation.
3. The cap matters. Without one, the applicant has an open-ended liability and will price it into the land deal.

Committee consideration and public scrutiny

The application went to committee. The officer report set out the policy requirement, the offer, the reviewer's conclusions and the review mechanisms, and the viability assessment was published with limited redactions.

Members asked the questions members always ask. Why is the figure not 35. What happens if values rise. Who checks the review. The answers were in the report, which is the point of publishing it.

One thing helped more than any argument about inputs: the heads of terms were settled before the committee date. A scheme going to committee with an unresolved obligations package invites a deferral, and a deferral in a contested viability case can mean a new cost index and a fresh round of review.

Outcome at the later review stage

The scheme was built out. At the late stage review, sales values had risen ahead of build cost inflation, and the review produced a surplus.

The authority took its share as a commuted payment rather than as additional units, because by then the building was complete and converting private units to affordable tenure was impractical. That is the usual outcome of a late stage review and it is worth understanding before agreeing one: the mechanism recovers value, and it does not usually deliver homes on the site it relates to.

Two lessons come out of the sequence. Settle the benchmark land value argument before you buy the site, because after exchange you are defending a number rather than establishing one. And treat the review mechanism as part of the offer rather than as a concession, because an authority that has a credible review is far more able to accept a reduced percentage today.

Schemes with a commercial element on the ground floor face the same arithmetic with an extra variable, as a mixed use scheme with retail below flats shows, and specialist uses bring their own value evidence problems, as a care home on a suburban site does.

Browse the PlanScope report types to see the supporting documents a mixed use application needs, or start a draft on PlanScope and send the viability work to a qualified valuer for review.

This is general guidance, not legal advice. Viability assessment is a specialist valuation exercise, so take advice from a suitably qualified valuer and a planning solicitor 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.