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According to the policies, at least 35% of affordable housing is needed to be met for a new project. To understand the profits and returns generated from the project, the appraisal of the proposed development should be accessed. This report will provide an assessment of the viability of the 0.36 Ha Dockley Road Industrial Estate located in the Bermondsey area of the London Borough of Southwark.
This report will assess the affordable housing viability in the Dockley Road Industrial Estate by 4 main steps.
Firstly, the type of site should be identified. Secondly, the inputs of the planning process will be researched. Thirdly, this report will identify the relevant outputs. Finally, the affordable housing for the proposed development will be established and analysed. In order to achieve convincing results, there are some scientific methods utilized in this report (East Riding of Yorkshire Council Affordable Housing Viability Assessment, 2010).
The residual method, essential for development land valuation, follows the formula:
Site Value=Value of Complete Development−Development Costs−Developer’s Profit
This is a kind of method that will be used to assume the inputs according to compare the main elements which have a significant impact on these inputs.
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For example, policies of the London and the Southwark.
The Appraisal l model is a general and a necessary tool to assess the viability of applications. What’s more, this method will consider the following factors.
The housing price data is from the Rightmove, in which over 20,000 members utilise it to advertise over 1,120,000 homes information.
According to the online resources, the advice shows that new properties located in the Dockley Road Industrial Estate sales from £425,000 for a 1-bed apartment ( £9,200 per sqm）, £ 580,000 for the 2-bed room ( £8,400 per sqm) and above £700,000 for a 3-bed room with £6,900 per sqm (Rightmove.co.uk, 2019). Additionally, the proposed development will be at high levels. Therefore, this report will confirm the private residential revenue with high prices Appendix 1.
| Beds | NIA (sqm) | Rates (£) | Sales (£) |
|---|---|---|---|
| 1 | 2,200 | 9,200 | 12,696,000 |
| 2 | 2,925 | 8,400 | 17,682,000 |
| 3 | 1,870 | 6,900 | 7,327,800 |
| Total | 4,547 | 37,708,800 |
There are some assumptions can be seen from the application:
Intermediate tenure housing can be confirmed at 50% of the corresponding private tenure housing capital values, with £4,600 per sqm for 1 bed, £4,200 per sqm for 2 bed and £3,450 per sqm for 3 bed.
What’s more, Social Rented housing will be valued at 20% of the private tenure, confirming £1,840 per sqm for 1 bed, £1,680 per sqm for 2 bed and £1,380 per sqm for 3 bed.
| Beds | NIA (sqm) | Intermediate (£) | Social Housing (£) |
|---|---|---|---|
| 1 | 2,200 | 2,263,200 | 603,520 |
| 2 | 2,925 | 2,066,400 | 551,040 |
| 3 | 1,870 | 1,673,250 | 445,740 |
| Total | 2,448 | 6,002,850 | 1,600,300 |
| Total Affordable Residential Values | £7,603,150 |
Meanwhile, the brief shows that the rental fees for the new commercial space may be assumed a blended rent of £250 per sqm and an all risks yield of 6%. The commercial valuation will be calculated by considering the assumption which is a rent-free period of 6 months.
Assuming a blended rent of £250 per sqm:
Purchase Price=Per Annum Rental Income×Recurring =£245,000×16.6666666=£4,083,317
Calculation
GIA: 1,089 sqm
NIA: 980 sqm
Gross to net of 90%
Blended rent: £250 per sqm
Per annum rental income: £245,000
Risks yield: 6%
Recurring: 100/6=16.6666666
Purchase price: £4,083,317
Total number of periods； £4,083,317 × 0.971285862=£3,966,068
The construction costs should be stated respectively including Residential construction, Commercial construction, Parking, roads, landscaping cost.
Brief states that the site will be rehabilitated from the industrial buildings to the residential and commercial uses. Additionally, it requires the buildings which would be constructed with upper quality. What’s more, the project will be conducted in the Great London. As such, according to BCIS, the construction costs at this region which are as follows:
| Type | Rate (£ per sqm) | GIA (sqm) | Total (£) |
|---|---|---|---|
| Flats | 2,006 | 8,829 | 17,710,974 |
| Commercial | 1,094 | 1,089 | 1,191,366 |
| Totals | 18,902,340 |
The application also presents some abnormal construction costs associated with the site. These will be shown as follows:
Buildings demolition Demolition: £500,000
Remediation: £500,000
Externals and landscaping: £10,000 per residential unit
Totals Externals and landscaping: £10,000 × 111=1,110,000
Totals: 2,110,000
7% of finance rate per annum has been made during the construction period.
3.7 Contingency and Professional Fees
Contingency fees: 5% of build costs
Professional fees：12% of building costs
Calculation:
Contingency fees: 5% × 18,902,340=£945,117
Professional fees：12% ×18,902,340=£2,268,281
Preliminary Works
8% × 18,902,340=£1,512,187
Marketing and letting fees will begin in the second year of the construction period. Additionally, it includes residential fees and commercial fees.
Residential fees: 1.5% of residential revenue
Commercial fees:
Agents: 10% of annual rent
Legals: 5% of annual rent
Calculation
Residential fees: 1.5% × 45,311,950=679,679
Commercial fees:
Agents: 10% × £245,000=24,500
Legals: 5% × £245,000=12,250
Totals: 716,429
Disposal fees also have two rows which are residential fees and commercial. The percentage of disposal fees are shown as follows:
Residential fees:
Sales agents: 1.5% of residential revenue
Sales legals: 0.5% of residential revenue
Commercial fees:
Sales agents: 1.5% of capital value
Legals: 0.5% of capital value
However, the commercial properties will be rented rather than be sold in this report. Therefore, the Commercial sales agent fee and Commercial sales legal fee will not be included in the assessment progress.
Calculation
Residential fees:
Sales agents: 1.5% × £45,311,950=£679,679
Commercial fees:
Legals: 0.5% × £3,966,068=£19,830
The Mayoral policy and planning policy for Southwark state the Community Infrastructure Levy (‘CIL’) payments. there are two-part fees needed to pay (London City Hall, 2019).
In terms of planning policies for Southwark authority, because of Dockley Road belongs to zone 2. therefore, the payment costs will be identified as follows:
Residential CIL: £218 per sqm
Retail CIL: £ 109 per sqm
Industrial and warehousing (storage use)：£0 per sqm
Affordable housing: £0 per sqm
In addition, Regulation 14 of the Community Infrastructure Levy Regulations 2010 states that developers are required to pay a current charge for MCIL (Legislation.gov.uk, 2019). The Mayor carried out a new charging schedule (MCIL2) and it will work on 1 April 2019. As such, in this report, MCIL2 will be used to calculate the CIL charge. What,s more, Southwark is a district of Central London and is the north-west of the London Borough of Southwark. therefore, £165 per square metre for retail including retail warehouses should be levied.
Section 106 costs: £230,000
The GDV, combining residential revenues and commercial values, amounts to £49,278,018.
The RLV, after accounting for all costs and developer's profit, stands at £6,584,526, indicating the potential land value after development.
With a policy requirement of 35% affordable housing, the analysis shows this development can meet the affordable housing needs while maintaining viability.
The IRR for the project is calculated at 17% annually, suggesting a healthy return on investment.
The viability assessment of the Dockley Road Industrial Estate for affordable housing development demonstrates a positive outlook.
Viability Assessment of Affordable Housing. (2024, Feb 18). Retrieved from https://studymoose.com/document/viability-assessment-of-affordable-housing
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