Development Viability for the Housing Forum Thursday 11 th July 2019
Our Team • Chris Seeley – Director • Amelia McCann – Head of Development
What Councils need to build again • Political leadership & stability • Campaigns • Partnerships • Speed • Upskilled teams • New production methods • Community building skills
Viability Who is viability most important to? Unless it is affordable it is not viable!
1) GDV Taking a Market Sales 3 x 2 bed bungalows @ £235,200 ea £705,600 3 x 3 bed det @ £275,000 ea £825,000 2 x 3 bed det @ £275,000 ea £550,000 Commercial 3 x 4 bed det @ £400,000 ea £1,200,000 3 x 4 bed det @ £450,000 ea £1,350,000 2 x 5 bed det @ £500,000 ea £1,000,000 17 £5,630,600 Approach Shared Ownership 2 x 2 bed bungalows @ 70% OMV (£164,640 ea) £329,280 2 x 2 bed semi @ 70% OMV (£161,280 ea) £322,560 £651,840 GDV £6,282,440 Example Viability 2) Costs Base construction inc. garages £2,929,405 Model Abnormals £210,000 Prof. fees @ 8% of construction £251,152 Sales legals @ 0.5% of GDV £31,412 Stat. fees @ 1.1% of construction £34,533 Sales/marketing @ 2% of market units GDV £112,612 Transaction cost on affordable @ 1% £6,518 Contingency @ 5% of construction and related fees £171,254 Planning obligations £271,000 Finance costs £270,000 £4,287,886 3) Profit 20% of market GDV £1,126,120 6% of affordable construction (£481,962) £28,918 £1,155,038 4) Residual Land Value GDV = £6,282,440 Less Costs = (£4,287,886) Less Profit = (£1,155,038) £839,516
And who is doing that?
Reliance on Grant Funding BUT… the social housing model is different – we expect to lose money in the early years
What do we mean by Affordable Housing? We also expect to subsidise our new homes What subsidy level is Option 1 – Affordable Rent required? (rent = £95pw) • A 2 bed house of Land £45,000 78m ² GIA Works £107,250 On-costs £18,810 • Land costs £45,000 Total £175,560 • Construction costs Deduct Grant £39,000 £1,375/m ² Loan Supportable by Rent £77,000 Subsidy Required £40,050 • On-costs are 12%
What do we mean by Affordable Housing? And it is not only rent…… Option 2 – Shared Ownership (OMV = £225,000, rent @ 2.75% retained, 40% sold) Additional On Costs for Sale, so £185,560 Deduct: Sale Proceeds £76,000 Deduct Grant £29,000 Loan Supportable by Rent £45,000 Subsidy Required £35,560
How to calculate cash to fund the loan • Rental Income • Less Management Costs • Less Maintenance Costs • Less Long Term Asset Costs (Sinking Funds) • Less Voids • Less Bad Debt
So how do you know a scheme is viable? • It is worth more than you are paying for it! • It cumulatively breaks even over a number of years • It has a positive NPV (or at least an NPV within your approval limits) • It fits your investment criteria!
How do you know - 2 • Proval • Pamwin • Abovo • Argus • Landval • Bespoke
Viability measures Net present value (NPV) - is the difference between the present value of cash inflows and • the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyse the profitability of a projected investment or project. Discounted Cash Flow (DCF) - analysis finds the present value of expected future cash • flows using a discount rate. The discount rate refers to the interest rate used in discounted cash flow (DCF) analysis to • determine the present value of future cash flows. The discount rate is commonly set at your interest rate or more likely 1-2% higher • Break Even point is when the company has turned a sufficient cumulative profit (or more • specifically, the cumulative cash) to cover the initial investment. The Internal Rate of Return (IRR) is the Discount Rate which returns a zero NPV. •
Build Costs – Benchmarking Based on 20 – 2 Bed Semis Development Cost/House £132,200 £114,200 £112,200 £114,600 (£1,590/m ² ) (£1,376/m ² ) (£1,352/m ² ) (£1,381/m ² ) On-Costs Superstructure (OSM) Superstructure (On-Site) Groundworks
Routes to Build • Tender • Package Deal • Developer Lead • Own (In-House) Contractor • In-House Contract Management
Working with the Private Sector • S106 opportunities • Joint ventures • Land lead • Land and build package deals
S106 Opportunities • Business aspirations for S106 ? • Direct developer negotiations • Via agent negotiations • Value of S106!
Joint Ventures • Usually on larger or portfolio of sites • Mutual objectives • Trusted relationship • Shared risk and reward
Land Opportunities • Resurgence in HA’s buying land • Competitive market • Managing land-owner expectations • Due diligence • Total control of timescale and specification
Land & Build Package Deals • Easier option! • Be clear on your expectations • Due diligence • Value for money?
Recommend
More recommend
