23 January 2009
The impact of policy and regulation on development viability
I spoke earlier today in London at a very enjoyable meeting of the Architects Journal ‘AJ 100’ Breakfast Club and amongst a number of things I talked about I highlighted that the development industry has become highly complex in recent years because of the very wide range of issues and technologies we are now dealing with.
As recently as the turn of the millennium it was an essentially simple industry. However, the upward pressures created by the cumulative impact of policy and regulation by Central, Regional and Local Government have intensified since 2000. Policy and regulation not only increase the complexity of development, but almost every new initiative adds to costs, whereas as yet few generate additional sales value sufficient to compensate for the extra cost.
These costs ultimately have to come out of land values.
As I have said, whilst I believe it is right to expect development to contribute to social and community infrastructure, increasingly we are also being asked to contribute to highways and public transport initiatives, education, flood mitigation strategies, and wider infrastructure issues.
The industry also faces an increasing number of local authority tariffs, and there is the prospect of the Community Infrastructure Levy which Government has said will be expected to raise more money than the current Section 106 agreements.
In addition, a study for English Partnerships has put achieving level 5 of the Code for Sustainable Homes at between £26,000 and £36,000 per dwelling. Zero carbon will require code level six, at even higher average costs. My Company is making progress towards meeting these recently published requirements, but they will be highly challenging and we need the supplier base for sustainable technologies to be much more robust than it is today.
Now I hope this does not come across as being negative, or that I am ‘crying wolf’, but we do need to keep in mind the costs of all that new development is expected to cover.
It would be most unfortunate if escalating demands on land values ultimately led to fewer projects being economically viable, and thereby reducing housing outputs further.
There has to be a balance in deciding upon the various demands because it may not be possible to satisfy everyone’s hopes and expectations.
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