Developer Contributions Not Viable
The Department for Social Development (DSD) has published further economic research which highlights that developer contributions are not viable in Northern Ireland at the present time.
The introduction of developer contributions for affordable housing was put on hold pending further economic research into the matter in November 2014 following intensive lobbying by the Construction Employers Federation (CEF) and the development community. The further research was carried out by a consortium of Heriot- Watt University and Three Dragons Planning Consultants.
CEF and the development community were key stakeholders in the further research which focussed on viability testing across Northern Ireland. The approach used assesses the residual value of a scheme. Residual value is the sum of all revenue in a scheme minus all the costs, including the costs of any planning obligations (e.g. affordable housing). The residual value (RV) is then compared with a notional benchmark land value. If the RV exceeds the benchmark, development is considered viable but otherwise, the development is not viable. Underlying this approach is the principle that the developer should receive a return for their investment and that the landowner receives a payment sufficient that they are willing to sell their land.
The testing confirmed the relative weakness of the current housing market in Northern Ireland with questions over the viability of developing 100% market housing in many parts of Northern Ireland away from Belfast.
The report recommends that:
- local councils should set targets for the delivery of developer contributions as part of the local development plan process which should be backed up by regional policy.
- DSD set up a working group of interested organisation (of which CEF will be one) to provide guidance on how viability issues should be dealt with.
- DSD should establish a support team to give direct assistance on viability matters.
- Further consideration is given to using grant as part of a developer contribution scheme to help meet funding gaps.
- Further consideration will be given to the provision of development incentives both to encourage demand and to bring forward necessary infrastructure to support new development).
CEF Managing Director John Armstrong commented, “The research confirms the CEF’s view that the timing is not right for the introduction of developer contributions for affordable housing in Northern Ireland. This research along with the recently published Housing Supply Forum report highlights that there is much work to be done to ensure housing need is addressed in Northern Ireland. The CEF will continue working with the relevant Government departments to address these issues”.
The full report can be viewed here.