Considerations and valuations for community-led housing

Picking up on two of the big issues discussed at 24 April’s event, Drilling into land and planning for community led housing, this Spotlight clarifies the policy framework supporting “Less than best consideration”, and suggests a method of valuation which seems uniquely appropriate for community-led development.

As the Co-operative Councils Innovation Network’s recent report has made clear: there is a key role for local authorities in supporting community-led housing (CLH), and CLH can play a key role in supporting councils with their strategic goals.

CLH can provide affordable housing, integrated social value outcomes and community cohesion. Generally, schemes push the envelope in terms of environmental performance. Crucially, CLH can deliver on sites which the public or private sector alone couldn’t, boosting housing numbers.

Marklake Court’s former garage site was transferred to resident-led developer Leathermarket CBS for £1. Image credit: Kilian O’Sullivan

Recognising these benefits, councils have supported CLH in many ways: through policy, by providing resources such as funding and training, and through the transfer of assets. It is the pricing of land required in these circumstances which is perhaps most frequently sought, and most problematic to offer.

In London, with land values largely determined by the appetite of global investors for urban land in capital cities, disposals of public land to community-led groups will likely be at a lower than market value, in recognition of the scheme’s social value or delivery of affordable housing.

This is widely viewed as difficult ground for public landowners to navigate: site disposals must consider “best consideration reasonably obtainable”, with “value” generally interpreted as cash receivable.

But, as public interest practitioner Stephen Hill, Director of C02 Future planners, made clear at FoL’s recent event: while generating the maximum receipt from land sales is a valid political choice, it is not a legislative obligation.

In fact, there is ample legislation to support disposal in recognition of non-financial value, if you get your policies aligned.

The “Less Than” Problem

The notion of “best” and “less than best” consideration stems from the Local Government Act of 1972, which stated that land “cannot be sold for a consideration less than the best that can be reasonably be obtained”. The “best consideration” is commonly understood to infer the most money, but in legal terms “reasonably” is a very pliable word, and considerations are not stipulated as solely financial.

In 2000, the Local Government Act introduced a new focus on improving local areas through consideration of economic, environmental and social wellbeing. The Act was ultimately repealed, but the introduction of these “three pillars” has since echoed in planning policy.

For non-Housing Revenue Account land, the General Consent 2003 states: “Council disposals need to be for the most valuable use allowed for that site”. This gave rise to “Unrestricted” and “Restricted Value”, the former being the highest value a site could achieve, and the latter being value achievable while achieving a specific policy objective.

If the difference between Restricted and Unrestricted values is less than £2million, an authority can proceed autonomously. If it is greater than £2million, the Secretary of State’s approval is required.

The subsequent Planning & Compulsory Purchase Act of 2004 embedded social, environmental and economic wellbeing in planning policy, establishing activity which furthered these outcomes as the sole justification for the compulsory acquisition of land for planning purposes.

The focus is reinforced by the current NPPF’s presumption in favour of achieving sustainable development, through the same three overarching objectives: economic, social, environmental, which are understood to be interdependent and mutually supportive.

In this context, any site could be required by planning policy to balance social, economic and environmental outcomes. With such a policy architecture in place, the restricted and unrestricted value of a site could be the same, with all developers expected to achieve the same outcomes.

In this scenario, the playing field would be levelled, allowing community-led groups proposing schemes that aligned with an authority’s integrated planning policy objectives and asset management plans, to behave competitively.

Valuation

What is valued, and how, will have a significant impact on feasibility of a development. Stephen noted:

“Surveyors are like computers, if you don’t feed us the right information and ask us the right questions, you won’t get the right answer!”

A “Red Book Valuation” is often held up as the definitive value of a site, and generally assumed to mean a valuation on the basis of market value. This ignores the five other approaches to valuation set out in Royal Institution of Chartered Surveyor’s Valuation Professional Standards, including equitable value:

IVS-Defined Basis of Value – Equitable Value

50.1. Equitable Value is the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties.

50.2. Equitable Value requires the assessment of the price that is fair between two specific, identified parties considering the respectiveadvantages or disadvantages that each will gain from the transaction. In contrast, Market Value requires any advantages or disadvantages that would not be available to, or incurred by, market participants generally to be disregarded.

RICS Valuation – Global Standards 2017, pg. 21

If a local authority and a community-led housing organisation wish to do something that fulfils their mutually agreed purposes, Equitable Value seems a sensible basis for the valuation, recognising the gains on both sides.

Indeed, this is the basis by which government in Northern Ireland transfer assets to community organisations or others planning to use an asset in the way of fulfils a public policy purpose. The approach has received little attention in England, but at Future of London’s next event we will see the approach applied to real projects.

We’re keen to share learning as widely as possible. If you have experience in these areas: if you’ve got your policies aligned, or you’ve worked with an equitable valuation – or if you’re seeking to do either of those things, drop us a line! We’re keen to share examples, case studies and learning as widely as possible. To get in touch, please email charli@futureoflondon.org.uk

This Spotlight was part of Future of London’s Foundations for Community-Led Housing project: a major programme of interactive events and action learning helping CLH groups and delivery partners to work effectively together.

Our next event is an ‘Applied learning’ surgery, 23 July


Presentation courtesy Stephen Hill.