The real deal-breaker to any large scale housing development in the UK is not, as may have once been the case, design quality or even density or height, rather the all-important viability calculation. A specialism in itself, the assessment is protected as ‘commercially sensitive’ information and therefore allows it to maintain its mythical status as a hidden and wholly ambiguous entity. Used by developers to assess the financial return on a development and principally to determine the amount of affordable housing a scheme can take before the whole project is rendered ‘unviable.’ Aside from housebuilding targets, political posturing and promises of ‘crusades’ to get starter homes built, it is precisely the provision of affordable housing both for rent and for purchase in necessary areas which is the most urgent of our housing requirements.
Crucially, viability calculations are based purely on current market values with no way of accurately determining future growth. Of course, the whole basis for development in the first place is the result of a speculative decision-making process on the part of the developer and the firm belief that values will increase in years to come. Given that London has proven to be consistently fruitful in this regard ever since the neoliberal policies of the 1980s, with average year-on-year growth of around 10%, developers have (since the financial crisis) returned to enjoying healthy profits. Given the lengthy nature of the planning process and the complexities of actually bringing a project to completion, these calculations are invariably out of date even before construction begins.
In addition, viability calculations require accurate construction costings which fluctuate dramatically based on the boom-and-bust nature of the industry, labour costs and demand in building materials. Accurate costings require a detailed understanding of the building’s design, a process which a developer is all too reluctant to undertake, therefore allowing more flexibility in the ability to skew the overall numbers. The calculation is in its nature highly complex and is made deliberately so by a select band of property analysts and consultants which an average planning officer is understandably unable to decipher. Within the various Excel models and viability generators a typical ‘profit-on-cost’ figure of 20% (pre-crisis figures were closer to 30%) is factored into the calculation, essentially meaning that a profit of 20% is guaranteed from the start for developer. If the scheme is considered to be unviable, even with the 20% already factored in, the developer will return to the local authority and lament that the project is simply not worth the effort. Councils and local authorities, driven by arbitrary targets, would typically rather see the project progress than scrap it entirely, opening up the grounds for a negotiation to take place and the erosion of pre-established percentages of affordable housing.
A thorough investigation by Radio 4 earlier this year entitled ‘The Affordable Housing Crisis’ revealed how developers can manipulate the dysfunctional system in order to make the scheme appear less viable in order to drive down the provision of affordable housing. Projects such as Greenwich Peninsula, a 10,000 home masterplan backed by Hong Kong consortium Knight Dragon which was reported by The Guardian to have driven down the quota of affordable provision from 35% to 21% and was later estimated to be undervalued at planning stage by around £500m. This opens up the debate beyond architects, planners and industry experts to the wider public as to the inner workings of how our cities are actually built. Not only confirming the cynical beliefs of those involved in such developments as true, such revelations also uncovered a system which might benefit from greater transparency.
When any planning application is made in the UK, whether it be on the mundane provision of bins, street lighting, benches or conversely on London’s most contentious developments, a set of drawings and, if appropriate, various reports on matters of ecology, traffic and refuse are all made fully accessible to anyone who wishes to access them through an online platform. Let’s consider a scenario where viability calculations could be published in such an equally transparent nature and examined to a similar level of scrutiny as a typical application does on grounds of visual, social and environmental impact. This would, more often than not, limit the current vested interest on the part of the developer to make a scheme look as unprofitable as possible on paper. If an independent and streetwise body were able to assess the viability report with a planning authority, the developer would be forced to generate a more realistic prediction of impending market value increases, thus proving the scheme to be more profitable and allowing more funding to be allocated to affordable housing.
Ultimately, developers are rewarded for the risks they take in this game, a strategy which public bodies, stigmatised as they are as dusty, incompetent and inefficient institutions cannot be seen to be doing: toying with taxpayers’ money on a predicted rise in property prices. Political and financial restraints prevent those public bodies willing to pursue such practices and leaves the field to developers. Rather than petulantly brand the world of developers as a collection of inherently evil human beings, it is far more productive to consider the system which has been put in place. A system which puts housing provision in the hands of those who have no logical reason to pursue any kind of campaign in favour of well-designed, mixed, spacious, genuinely affordable housing and instead places far more care and weight on Excel spreadsheets and cost models to generate homes for us to live in.