The application of development appraisal to development viability assessment

In the UK, the movement of the ownership of investment property away from small scale local entrepreneurs to larger companies and institutions from the 1960s onwards, attracted the interest of professional advisors well versed in finance theory and practice. Investment property valuation models came under intense academic and practical scrutiny leading to a prolonged debate from the 1970s onwards. But development appraisal models in the UK had escaped similar scrutiny until recently. In 2008, UK Planning Policy Statement (PPS) 12, in setting out the planning policy framework and guidance, stipulated that viability considerations should constitute part of the evidence base in Core Strategies and other Development Plan Documents. This was particularly relevant in setting housing targets. In 2010, Planning Policy Statement 3: Housing (PPS3) required Local Planning Authorities to set targets for affordable housing and to assess the likely economic viability of these targets. This advice has been reinforced by Planning Inspectorate judgements, where core strategies have been found to be unsound due to a lack of economic viability testing to justify affordable housing targets. Development viability modelling means development appraisal techniques are now in the UK academic and practice spotlight. This paper examines development appraisal in the context of Development Viability Assessment (DVA). Adopting a case study approach of a number of viability appraisals throughout the UK, it critically examines the application of development appraisal to DVA by addressing 2 main questions. First, how does the application of technique differ from a corporate finance model, as applied to investment cash flows? Second, what are the practical issues relating to the specifics of development viability assessment at both area-wide and site specific level?