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APPENDIX 2 - Valuation and Forecasting Methodology
1. Introduction
This appendix sets out the methodology used to obtain the following findings
- Valuation of in-kind contributions
- Estimate of the possible value of reported in-kind contributions where insufficient information was available to make a valuation
- Estimate of the value of contributions that may have been secured by the 6 local authorities that did not respond to the study team
- Forecasting future contributions to 2010.
2. Valuation of in-kind contributions
The main aim of this study is to look at the economic and financial benefit accruing to the public sector, through planning agreements over the last three financial years. The majority of contributions are made through direct financial contributions. However, a number of contributions are provided in-kind. It is therefore necessary to put a value against the value of land or works involved in the contribution in order to fully assess the value of the contribution. This annex sets out the methodology used to ascribe financial values to the contributions received.
In order to fully analyse the agreements, it was necessary to understand what the proposed development is for; where the need for the agreement has arisen from; how it is justified in terms of statutory or non-statutory policy, and what contributions are being secured. The planning officer's delegated or committee report on the application was obtained where possible to establish where the need for the agreement has arisen from and what effect it would have. This was supplemented by reviewing the relevant policy documents for each sample Authority.
Key information was obtained where possible, including details of the planning application including site location and description of proposal. This was important to enable the valuation of developments and developer contributions delivered in-kind.
Where the contribution involves a direct financial contribution Authorities were asked to provide the study team with the details of that contribution.
Where the contribution is delivered in-kind, valuation methods have been discussed with the Scottish Government.
In-kind Valuation Issues
It has only been possible to ascribe values to in-kind contributions where the information supplied by the local authorities has been sufficient enough to do so. This applied to 129 of the 205 in-kind contributions that authorities advised of.
By far the most valuable in-kind contribution is the provision of low cost houses and flats followed by the provision of low cost, serviced housing plots. The balance of the in-kind contributions are made up by traffic measures, provision and upgrade of open space and numerous other minor items including provision of public art. Some of the terms of the planning agreement were deemed to relate solely to the restriction of the use of land for planning policy purposes and not to developer contributions and therefore valued at nil. These included occupancy restrictions on houses or commercial property, some landscaping, reinstatement of mining operations, provision of street lighting etc.
Valuation Methods
The valuation of the non-housing contributions in-kind was conducted mainly by direct analysis of the agreements completed by Scottish Planning Authorities which produced an average cost/value per residential unit or an average cost per item. Some items remained impossible to assess such as travel plans or have been described by authorities simply as "unspecified works" with no other information given as to what that might constitute. In terms of travel plans, similar recent research in England and Wales has found no values can be ascribed to such plans. The other rates are derived using Bidwells' experience of valuing similar developments and are set out and explained in Table A2.1 below.
Table A2.1: Values for In-kind Contributions other than Affordable Housing
Recreation | |
Open space | Market value of land per hectare |
Synthetic football pitch | Typical cost of a small synthetic surfaced sports area |
Play areas | No details given of size of play areas and equipment to be provided therefore in-kind value is based on the typical value of similar direct contributions |
Roads/Infrastructure | |
Bus shelter | Typical cost to purchase and install one shelter |
Traffic lights/ calming and pedestrian crossing | Insufficient details of exactly what is required by these contributions therefore in-kind value ascribed is the typical value of a direct financial contribution for the same |
Footpath Improvements | Average cost of direct contribution is £250 per housing unit. This figure has been applied as there is insufficient detail on the length of footpaths specified by individual agreements |
Roundabout | Cost of constructing standard roundabout junction |
Miscellaneous/Other | |
Dog bins | Value of in-kind provision based on the average cost of a financial contribution for similar |
Public Art | The value used is the average of the financial contributions for the same |
CCTV | Cost of supplying and installing one unit |
Mill Interpretation boards | Cost of supplying and installing one board |
Recycling bins | Cost of supplying and installing |
No Value | |
Landscaping, Archaeological investigations, Remediation | No value/ benefit - usually covered by planning condition |
Replacement of facilities | No benefit as the agreement only secures replacement of existing facility |
Travel Plan | No financial value placed on these. |
Valuation of In-kind Affordable Housing Contributions
For the valuation of housing contributions the Country was divided into the main cities, Glasgow, Edinburgh, Dundee and Aberdeen and all other areas are described as "rural". For the valuation of houses it is assumed that a two bedroom house is 75 sq m and a three bedroom house 100 sq m. It is assumed that a one bedroom flat extends to 50 sq m, two bedrooms to 65 sq m and three bedrooms to 85 sq m. From experience, sale prices of £1,900/sq m were applied for rural houses with £1,750/sq m for a rural flat. Units in the four cities were assumed to sell for approximately £10,000 to £30,000 more. Serviced plots for flats and houses were valued between £35,000 and £52,500 each and represent approximately 30% of the market value of the average house or flat - see Table A2.2.
Table A2.2: Values for In-kind Affordable Housing Contributions
Low Cost Houses |
|---|
| Value | Sq.m. | £/sq.m | Plot Value |
|---|
Rural |
|---|
2Bed | £ 142,000 | 75 | 1900 | |
|---|
3Bed | £ 190,000 | 100 | 1900 | |
|---|
Average | £ 165,000 | | | £ 50,000 |
|---|
City |
|---|
2Bed | £ 155,000 | | | |
|---|
3Bed | £ 200,000 | | | |
|---|
Average | £ 175,000 | | | £ 52,500 |
|---|
Low Cost Flats |
|---|
| Value | Sq.m. | £/sq.m | Plot Value |
|---|
Rural |
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1Bed | £ 87,500 | 50 | 1750 | |
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2Bed | £ 113,750 | 65 | 1750 | |
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3Bed | £ 148,750 | 85 | 1750 | |
|---|
Average | £ 116,000 | | | £ 35,000 |
|---|
City |
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1Bed | £ 90,000 | | | |
|---|
2Bed | £ 135,000 | | | |
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3Bed | £ 180,000 | | | |
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Average | £ 135,000 | | | £ 40,500 |
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Market Value
When assessing market values for residential properties we have arrived at our opinion of the market value taking no account of the ultimate owner or any restricted or discounted value to a registered social landlord. Values assume normal builder's/developer's profit. Market value is defined as what sale price would be achievable on the unrestricted housing market with no occupancy restrictions.
It is assumed in all cases that low cost housing is being provided to a typical specification required by a Registered Social Landlord.
The values in Table A2.2 were arrived at from Bidwells' general knowledge of the Scottish residential property market and also from detailed studies for the new housing market in Crieff and Dunkeld carried out for another client and a separate study for housing developments in Aviemore. It is considered that this is up to date market information that reflects average Scottish house prices.
3. Estimating the Total Value of reported In-Kind Contributions Where Insufficient Details Were Provided To Make a Valuation
There were 78 in-kind contributions reported to the study team by local authorities for which insufficient information was provided to enable a valuation to be made. An estimate of the total value of those contributions has been produced by using the average value of all in-kind contributions for which it was possible to conduct a valuation.
The figures are set out in Table A2.3 below.
Table A2.3: Method for estimating the value of known in-kind contributions for which insufficient information has been given to carry out a valuation
| Number/Value | Source/Method |
|---|
Average value of an in-kind contribution | £237,600 | Total value of valued in-kind contributions (£30,176,300) divided by total number of such contributions (127) |
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Total number of known in-kind contributions that it has not been possible to value due to insufficient information | 78 | Analysis of Stage 1 returns from the 28 Local Authorities that responded to the study team |
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Estimated total value of in-kind contributions where information provided was insufficient to value | £18.5m | The total number of such contributions (78) times the average of valued in-kind contributions (£237,600). |
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4. Estimating The Total Value Of Contributions That May Have Been Secured By The Six Local Authorities That Did Not Respond To The Study Team.
The method used for estimating the total value of contributions that may have been secured by the six authorities that did not respond to the study team is set out in Table A2.4 below.
Table A2.4: Method for estimating the number and value of contributions secured by the 6 local authorities that did not respond to the study team
| | Methodology/Source |
|---|
Estimated total number of planning permissions likely to be linked with a planning agreement for the 6 authorities that did not respond to the study team | 150 | Number of planning permissions for new housing and other major developments granted by these authorities during the study period and recorded to have been linked with a s75 agreement in data held by the Scottish Government. |
|---|
Estimated total number of separate contributions secured by the 6 authorities that did not respond to the study team | 225 | The total number of estimated agreements (150) times the average number of separate contributions secured per agreement (1.5) |
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Estimated total number of direct financial contributions secured by the 6 authorities that did not respond to the study team | 189 | Total estimated number of contributions (225) times the percentage of known contributions that are direct financial payments (84%) |
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Estimated total value of contributions that are direct financial payments secured by the 6 authorities that did not respond to the study team | £15.5m | The total estimated number of direct financial contributions (189) times the average value of direct financial contributions (£82,000) |
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Estimated total number of in-kind contributions secured by the 6 authorities that did not respond to the study team | 36 | Total estimated number of contributions (225) times the percentage of known contributions that are in-kind (16%) |
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Estimated total value of in-kind contributions secured by the 6 authorities that did not respond to the study team | £8,553,600 | The total estimated number of in-kind contributions (36) times the average value of in-kind contributions (£237,600) |
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5. Forecasting Methodology
The study team was required to forecast the possible value of contributions that may be secured to 2010. In order to produce those forecasts the study took into account variations in policy and practice between local authorities. Some authorities have mature practices in place with dedicated officers and a full range of policies and it is therefore assumed that their ability to evolve further and obtain increased levels of developer contributions is limited. However, some authorities are beginning to develop more refined systems and it is therefore assumed that the number and value of contributions they receive will increase. The forecasts are based on an assumption that all contributions had been paid and that applies to in-kind contributions as well. The forecasting of the anticipated value of contributions to 2010 also takes into account issues such as:
- the identified trends in agreements, policy and practice over the period to 2007 and our assessment of how these trends are likely to evolve
- What is anticipated to happen in terms of development activity within the various local authorities in the period to 2010
- significant current and expected infrastructure projects that are likely to be linked with developer contributions
Three tables were produced giving projections of the values that may be achieved in the period 2007-2010. These are Tables 7.1, 7.2 and 7.3 in Chapter 7 of this report.
Table 7.1 projects for the authorities that responded to the spreadsheet and provided details of contributions received. The projection is based on development activities remaining constant and growth linked to an increase in the number and value of agreements. New policies expected to be put in place have been included in this projection.
Table 7.2 shows the same projection as Table 7.1 but includes elements of some of the major developments expected to come forward over the next three years. These developments are Shawfair in Midlothian and the Core Development Areas in Midlothian.
Table 7.3 includes figures for the authorities that did not provide any details on the value of contributions received. The figures against those authorities are based on the anticipated performance of authorities similar in terms of geography, size and planning policy framework.
Additional Note: Alternative Valuation Method for In-Kind Affordable Housing Contributions
Following extensive discussion with the Scottish Government regarding the method to be used for the valuation of the provision of housing by Registered Social Landlords ( RSLs), it was agreed that housing provided for RSLs is to be calculated at market value, regardless of the actual mechanism described in the planning agreement. The in-kind affordable contributions are therefore valued on the basis that the houses are "provided" and the value is 100%, i.e. market value. The method of valuation used in this study differs from that of recent studies in England and Wales, which values the in-kind contribution of affordable housing on the basis of the discounted sale principle. This alternative method of valuation is explained below.
The rationale for a discounted sale basis of valuation stems from the fact that, from the detailed case studies of various authorities carried out in the Stage 2 survey for this work, there were no instances whereby a developer has been required to hand over completed units to a RSL at nil value. In all cases studied the RSL has paid a discounted price to the developer. The details of the examples from the case studies are shown in Table A2.5.
Table A2.5 Examples of Actual In-Kind Contributions for Affordable Housing from the Stage 2 Survey
Other (sqm/ hectares) | Dev Details Complete | Date Committee minded to grant | Date Permission Granted | Contribution Type | Description of Contribution | Direct Contribution £ | In Kind Contribution £ | Total Contribution | Gaps | Comments |
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| OK | 19/05/2006 | 14/02/2007 | A/H | Two of the dwelling houses on the development must be Affordable Housing Units | | £50,000 | £50,000 | Value | |
| OK | | 21/01/2005 | A/H | affordable housing units on site | | £75,000 | £75,000 | Value | |
| OK | | 10/07/2005 | A/H | 14 affordable housing units on site | | £350,000 | £350,000 | Value | |
| OK | | 12/09/2006 | A/H | affordable housing units on site | | £200,000 | £200,000 | Value | |
| OK | | 29/01/2007 | A/H | affordable housing units on site | | £200,000 | £200,000 | Value | |
| OK | | | A/H | 6 Plots to be supplied by developer | | £300,000 | £300,000 | Value | |
| OK | | | A/H | Up to 3 affordable plots to be provided by developer | | £150,000 | £150,000 | Value | |
| OK | | 21/10/2005 | A/H | 20% of the selling price of each residential unit. This requirement shall be activated only when the total sum received in respect of residential units exceeds the lesser of: a) the Exceptional Development Costs threshold (£2.75M) and b) the actual Devel | | £1,951,400 | £1,951,400 | Value | 77 @ flats £116,000 plus 5 villas at £165,000 |
| OK | 10/04/2003 | 07/04/2005 | A/H | Provided in kind, 23 affordable housing units as follows: 50% flatted units, with 25% to be 1-bedroom and 75% to be 2-bedroom. 50% non-flatted units, with 25% to be 2-bedroom and 75% to be 3-bedroom. | | £805,000 | £805,000 | Value | 23@£35,000 |
| OK | | 12/05/2006 | A/H | For A/H land capable of delivering 15% of the total site capacity (8 units) to be transferred within 14 days of the council agreeing the identity of the party to whom the land shall be transferred | | £400,000 | £400,000 | Value | |
| OK | 20/09/2006 | 23/03/2007 | A/H | Serviced land for affordable housing to be provided for 8 flats prior to any flat on the site being occupied | | £280,000 | £280,000 | Value | |
| None | | 12/06/2006 | A/H | 15% serviced land to be transferred for affordable housing, no building shall be occupied until this land has been transferred | | £400,000 | £400,000 | Value | 8 plots |
Mixed use development | OK | | 12/08/2004 | A/H | 15% serviced land to be transferred for affordable housing, to be transferred within 18 months of the open market housing site start date | | £400,000 | £400,000 | Value | |
| OK | 07/03/2005 | 24/10/2005 | A/H | 3 x houses on site restricted sale at £98,000 | | £156,000 | £156,000 | Value | vale is different in value |
| OK | 13/02/2006 | 14/11/2006 | A/H | In kind contribution of 4x2 bed houses to be passed on to an RSL at a discounted price no of no more than £110,000 | | £64,000 | £64,000 | Value | difference between £110,000 and MV of £142,000 |
| OK | | 22/11/2006 | A/H | Affordable housing - see 06/00569/ LBC | | £0 | £0 | Value | see other consent |
| OK | 11/10/2004 | 28/10/2004 | A/H | On site provision, 16 discounted dwellings marketed at 25% below purchase price and retained partial shared ownership by developer. | | £660,000 | £660,000 | Value | 25% of 16 @ £165,000 |
| OK | 21/06/2006 | 29/06/2006 | A/H | On site provision, transfer of land to RSL at an agreed purchase price for construction of 16 units | | £800,000 | £800,000 | Value | |
| OK | 12/12/2006 | | A/H | Affordable Housing | | £126,000 | £126,000 | Value | Average of £2,100 per unit |
1730sqm | OK | 15/08/2006 | | A/H | Affordable Housing | | £0 | £0 | Value | |
| OK | 12/09/2006 | | A/H | Affordable Housing | | £107,100 | £107,100 | Value | |
| OK | 19/09/2006 | | A/H | Affordable Housing | | £27,300 | £27,300 | Value | |
| OK | 09/08/2006 | | A/H | Affordable Housing | | £52,500 | £52,500 | Value | |
| None | | Apr-06 | A/H | Affordable Housing contribution in lieu of on site provision | £12,500.00 | £0 | £12,500 | Value | |
| OK | 18/07/2002 | 13/10/2005 | A/H | Ownership restricted to Affordable Housing | | £0 | £0 | Value | |
| OK | 18/07/2002 | 13/10/2005 | A/H | Ownership restricted to Affordable Housing | | £0 | £0 | Value | |
| OK | 02/12/2004 | 07/04/2005 | A/H | 39 affordable housing units to be provided in kind | | £1,365,000 | £1,365,000 | Value | |
For example, a developer may be required to provide 4 affordable houses on site and transfer them to an RSL at an agreed price of £120,000 per unit. The market value of such housing is £165,000. The value of the contribution is the difference of the market value and the agreed price which in this case would be £45,000 per unit, or a total of £180,000.
The above is simply a hypothetical example and the evidence of the survey is that the actual levels paid by an RSL varies across Scotland. From the case study analysis of individual agreements and market experience values could be ascribed per affordable housing unit on site as follows - Edinburgh (£48,000 per unit), Glasgow (£40,000), Lothians (£35,000), Borders (£25,000) and other (£20,000). In some cases the value of the discount is actually similar to the typical value of a commuted sum payment.
Discounted Sale
The methodology is similar to that used for valuing on site provision of affordable housing units. Three agreements of this type were recorded, stipulating either a set sale price for the housing units, or the percentage below market value they were to be sold. The calculation therefore involves establishing a market value for a house in that area in accordance with the figures in the paragraphs above and subtracting the set sale price or establishing the value of the discounted percentage of the market price. The examples below illustrate.
Example 1
An agreement requires that 2 units be sold at restricted sale price of £110,000. Market value of the houses is £143,000, therefore the value of the contribution is £143,000 - £110,000, which in this example is £33,000 per unit.
Example 2
An agreement requires 4 units to be sold at 25% below market value. If the market value of the said units is £100,000, the contribution is 25% of £400,000, which in this example would equate to a contribution of £100,000.
Land transfers
Land transfers were the most frequent in-kind affordable housing contribution alongside the on site provision of affordable housing units. The agreements analysed specified either a set number of serviced plots or a percentage of the site capacity to be transferred to a RSL. The agreements did not give sufficient information on the value of land transfers to inform the valuation of the contribution. Therefore, market value of a serviced house plot has been used. The values are outlined in Table A2.2 above.
Other affordable housing contributions
One contribution was recorded requiring a contribution equivalent to 20% of the selling price of each residential unit to the Council. The development involved the erection of 77 flats and 5 houses. Using the figures above the total sale value of the development is estimated at £9,757,000. 20% of this figure is £1,951,400, which is the value of that contribution. This was a pure cash contribution.
Fife Council supplied some information on direct and in-kind affordable housing contributions. However, the information supplied does not state the number of affordable housing units secured. However, information has been supplied in most cases on the size of the housing development that triggered the affordable housing contribution. From the information given it has been possible to establish that the average direct contribution secured by Fife Council equates to £2,100 per house approved. Contributions where the Council advised of no financial contribution were assumed to be in-kind contributions. Therefore the figure of £2,100 per house has been applied to the contributions where Fife Council provide no information on the value of the contribution.
There were a total of 3 cases in Moray and East Lothian where a Housing Association secured planning permission for the provision of affordable housing. Legal agreements were concluded to ensure that the houses remained as affordable housing units. No value has been given to these contributions as these were related to affordable housing developments by Housing Associations and the legal agreement is merely restricting the development to what was proposed.
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