Longbridge Area Action Plan

Knight Frank Note on Viability on behalf of Birmingham City Council

27 November 2008

1.0Introduction

1.1This position statement has been prepared to assist the Examination in Public understand the processes that have taken place during the recent adjournment to consider viability issues associated with the AAP, following a fairly rapid downturn in the economy and in light of additional work undertaken by St. Modwen on scheme viability. The viability work was also reviewed in consideration of further information on public sector investment, including intervention by Advantage West Midlands (AWM).

1.2The current financial position has caused us to re-consider how the Longbridge Area Action Plan (LAAP) should respond to economic changes. In light of advice from Government Office and PINS, the LAAP is based on likely conditions over the lifetime of the plan and having regard to previous property cycles. It would not be unreasonable to expect two property cycles to occur over the Plan period. The Council have recommended minor changes to the LAAP to address how viability should be dealt with at the planning application stage to take account of market conditions prevailing at the time each application is submitted.

1.3It is therefore important to distinguish between what might be feasible in planning terms at Longbridge in terms of development in the short term, compared what might reasonably be expected to be delivered over the life of the plan.

1.4This note focuses upon the following:

  • The process involved in revisiting the model – including meetings with St. Modwen and AWM
  • Key alterations made to the model following discussions
  • Key model outputs
  • Areas of common ground

2.0Meetings with St Modwen and AWM

2.1During the adjournment there have been a series of conference calls and meetings between Birmingham City Council, its agent Knight Frank, AWM and St Modwen and its advisors, to seek to understand and resolve differences of opinions between the parties.

2.2St Modwen as the principal developer has an aspiration to redevelop the greater part of the Longbridge area covered by the AAP. The planning applications made by St Modwen in outline is not a matter for the AAP Examination, but the AAP will inform the subsequent assessment of all applications for development. St Modwen and AWM are broadly satisfied with the content of the AAP in land use terms.

2.3It is understood that the parties are broadly content with the viability assessment that has been reconsidered in the light of the discussions during the adjournment. It has also been helpful to have access to the development agreement between St Modwen and AWM (2006) relating to expenditure from that time and additional clarification of expenditure prior to that date.

2.4The key elements of the discussions between the parties have focused upon:

  • Better understanding scheme remediation, infrastructure and construction costs
  • Updating information about public sector funding principally through AWM
  • Reviewing the cost components associated with the development of the area, including costs associated with planning gain to be provided through the Longbridge Infrastructure Tariff, Section106 and s278 agreements.

3.0Key Alterations to the Viability Model

3.1Essentially, the changes that have been made to the model are as follows:

Housing

  • The model previously described the aspirational mix of housing for the development, this has been revised to enable the calculation of the gross housing mix specified in the three principal development areas based on discussion with St Modwen.
  • Housing allocations - these have been amended:
  • North Works is now shown with some houses, not just all flats
  • West works contains some larger units of 4 and 5 bed houses
  • East works is unchanged.
  • Affordable housing has been retained at a level of 35% but the mix of social rented and shared ownership dwellings has been amended to 50:50 split between social rent and shared equity housing.

AWM input

3.2The main element of public funding originally detailed in the AAP Viability Model (March 2008) related to AWM investment of £39m. Following the release of further information by AWM the level of public funding investment and returns can now be clarified as follows:

  • AWM has Government approval for injecting £39m of public funding into Longbridge.
  • The majority of the £39m has been spent on land acquisition, remediation and other associated costs.
  • Of the total £39m investment, AWM is expecting an estimated return of £12.6m on the balance of land holding.
  • AWM has provided financial support of approximately £26m against which the agency will not receive any reimbursement (unless the scheme is significantly more profitable than anticipated)

Clarification of AWM’s position statement.

3.3In relation to the comments in Alan Turner's / AWM's position statement, there remains some residual uncertainty relating to the reference to the figure of £9m. However the figures/statements above have more recently been agreed with AWM in relation to ongoing discussion around viability. Further information can be provided if necessary.

3.4These revised figures have now been run through the revised viability model.

Housing Corporation input

3.5The revised modelling also includes an estimate of Housing Corporation grant, which is set at £6.5m. This is contribution towards meeting the difference in construction costs between Code for Sustainable Homes, Level 3 and Level 4 for the affordable housing within the development. This estimated component of public funding remains unaltered from the original viability model, although an estimated Housing Corporation contribution towards meeting more affordable housing targets (beyond 35%), has been removed (originally estimated at £4.9m) from the model.

Section 278 costs

3.6It should be noted that S278 figures have decreased by approximately £10m from the initial viability model. This is as a result of meetings between the Councils transport officers and ST Modwen.

Remediation and other F&G costs

3.7In conjunction with St Modwen, Faithful and Gould and Birmingham City Council, the schedule of costs relating to the overall development have been reviewed. A number of these costs have been altered on further consideration as a result of these meetings and the revised costs and associated revised fees, have been incorporated in the model.

Other Points of Discussions

  • West works built areas: "B1b, B1c, B2 and high quality tech use all amount to: 100,000 sqm" Our appraisal model overstated the gross floor area as 145,000m2 . We have reduced this to 100,000 sqm to be consistent with the plan.
  • Cofton Centre Development Area: this was amended further to discussion with St Modwen.
  • Phasing: there was some discussion in relation to the phasing and whether we should push everything back a year. In the event we have not changed the phasing.

3.8It is fair to say that there inevitably remain some uncertainties, but the overall position is understood to be agreed between the parties.

4.0Model outputs and inference

4.1It is also considered as a consequence of the steer from PINS on level of detail, that it is probably not appropriate or necessary for there to be a detailed consideration of all of the model inputs. However we enclose the model summary sheet however further information will be available on the ‘Future 4 Longbridge’ website[1].

4.2It will be apparent that in the medium to long term there will be a need for further public sector intervention to ensure the delivery of the Longbridge proposals contained within the AAP. The public sector contribution required is likely to be in the order of £29m. This sum represents only a small percentage of the gross development costs. Over the life of the AAP, it is considered that this comparatively small level of additional funding would not appear to be unrealistic having regards to the regional importance of this development area.

4.3On the basis that this additional funding occurs, it would be possible to deliver a realistic return to the developer (20.0% on cost).

4.4In addition, the model shows that development would also provide a target level of 35% affordable housing together with the planning mitigation measures envisaged in the AAP (namely the S278, Longbridge Community Infrastructure improvements and Section 106 obligations) and phased in accordance with the phasing proposals in Section D (as revised).

4.5The model further assumes that sales and investment values return to the levels existing in the early part of 2008 and that costs remain at their current levels.

5.0Conclusions

5.1The model demonstrates that in overall terms that development envisaged in the LAAP is deliverable. It recognises that there have been a series of public sector interventions since 2003 and further will be required to deliver the AAP proposals, or development close to that objective.

5.2In order to overcome the social and physical infrastructure needs identified within the City Council’s tariff approach, in accordance with Circular 05/2005, and to facilitate the delivery of 35% affordable housing, the appraisal modelling demonstrates that the associated costs of this infrastructure can be provided by the development on the basis that there is further financial support from public sector agencies. The level of that support required representing about 3.96% of the total development costs would be a modest additional investment to ensure the delivery of the AAP objectives over the life of the Plan.

Jeremy Edge

Knight Frank LLP

Knight Frank Note on Viabilty  Longbridge Area Action Plan1 of 5

Prepared on behalf of Birmingham City Council  27 November 2008

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