Viability and affordable housing

Viability can have a direct impact on the number of affordable homes built. Sally Jackson explains what it is and how developers cite it as the reason for lowering their affordable housing targets.

What is viability?

Any housing development scheme must be viable to get built. Viability looks at the gross development value or the total income from that scheme and balances it against the total costs. The sum of the costs must equal the gross development value. If they exceed it, the scheme becomes unviable and will not get built.

The gross development value is made up of these amounts:

Land

The amount of money the landowner wants.

Development

The costs involved in building the scheme.

Return

The profit for the developer.

Planning obligations

Community Infrastructure Levy (CIL)

Most councils impose a Community Infrastructure Levy. It is a fixed cost, prescribed by council policy, which cannot be sidelined. A CIL is designed to help cover the costs of the infrastructure needed to get the scheme built.

Affordable housing

Affordable housing is not part of the CIL but an extra obligation that can be subject to discussion.

The government says that viability is used to ensure that the developer and the landowner get a competitive return from a development scheme. The scheme will not get built without a willing landowner and a willing developer.

What developers say

Developers often say that it is the unreasonable affordable housing costs that make a scheme unviable. The planning obligation costs such as contributing to new roads or building new schools are fixed by the council policy but affordable housing is negotiated on a one-off basis. This makes it more vulnerable to cutting. Developers may cite an increase in the other costs such as extra windows needed, bricks become more expensive and unexpected expense not allowed for, such as money being more expensive to borrow, as a reason for cutting back or removing the affordable housing.

This diagram gives examples of developers’ costs in relation to the gross development value:

Viability and affordable housing

The impact on affordable housing

The council are often left with a choice forced on them by the developer. Accept the reduction or removal of affordable housing or the scheme does not go ahead, because the figures don’t add up.