EIR - GLA Benchmarks for Development Viability Reviews

This request is made under the FOI Act & Environmental Information Regs 2004, concerning information the GLA must hold – in the form of benchmark values used when reviewing viability assessments, (while recognising that these can vary and would be ranges rather than single fixed figures). In that light, can planning officers provide the GLA’s current standard ‘benchmarks’ for the factors listed below, such as construction costs?

To explain, please note, as GLA/borough viability guidance makes clear, I realise that all viability reviews have to be project specific, but London boroughs and the GLA compare developers’ inputs with ‘publicly available’ benchmarks, such as standard construction costs compiled by the Building Cost Information Service. The problem is such benchmarks are NOT available to the general public. For example, BCIS information is charged for and/or only available to industry companies. Nor are figures detailed in reports, (with the exception of Strength in Numbers by the Centre for London, where information is partial and flawed). The amazing lack of freely available public information goes against all guidance principles about community involvement and transparency.

The GLA produced an Affordable Housing Toolkit. One London council has informed me that their consultants ‘use the GLA approved model as a starting point (which has standard benchmarks) thereafter the circumstances of individual schemes and the current market will apply’. So the GLA does have benchmarks, although ‘benchmarks’ could be defined as ‘baseline’ or standard costs or calculation methods generally used in developers’ viability appraisals.

Most London councils have declined to provide benchmarks on the grounds that assumptions are project specific, vary, and reviews are carried out by consultants rather than council officers. The GLA now has its own in-house Viability Team, for the specific purpose or reviewing developers’ viability appraisals – a task that cannot be done without industry benchmarks to compare proposals to, so hopefully relying solely on external consultants isn’t a barrier.

Can officers provide information on the following ‘benchmarks,’ recognising that that figures are likely to be ranges, and that they are only guidelines, while actual inputs will vary from project to project.

1. Construction costs

Preferably per square meter, gross internal area. One borough reports their standard benchmark for private sale units as £2,653/sqm, with the qualification that high rise development can cost ‘up to 25% more’. I need current benchmarks for blocks of flats, (as opposed to 2-3 storey houses), if possible broken down by building heights in whatever categories are commonly used. Below are just suggestions:

a) Medium rise: eg, 5-20 storeys

b) High rise: eg, over 20 storeys.

It would also be useful to know how buildings are classified by height – eg, how many storeys qualifies as ‘high rise’, and how high building have to get before construction costs significantly increase due to the use of cranes etc.

c) Standards costs for private sale units – vs- costs for affordable rented units, which have lower specification kitchens and bathrooms etc. This could be expressed in different costs per square meter, or by using affordable rented as a base cost, with extra flat rates added to private sale units, eg, ‘add £10,000 for higher quality kitchens, bathrooms, and decorations.’

d) Costs for shared ownership units, if different to outright private sale units.

e) It would also help to get a brief explanation of factors that make private sale units more expensive to build, beyond higher spec fit out costs for kitchens and bathrooms.

2. Finance costs and how long benchmarks have applied

Two councils quote a benchmark of 7% of total costs. (Also, how have benchmarks varied over time, for example before lower interest rates following the credit crunch?)

3. Marketing costs

At least two councils benchmark is 3% of Gross Development Value, of which 1% is for estate agents’ fees. If possible, it would be useful to know what costs account for the other 2% (Eg, on site sales offices). Another borough stated that, ‘Marketing fees are typically quoted in a range 1.5% to 3%, although the higher percentage is generally more expected on a larger scheme where there may be a show flat or similar additional costs.’

4. ‘Professional Fees’ and ‘contingency’

The Centre for London’s report, Strength in Numbers, accepts 15% on construction costs as a reasonable amount for ‘Professional Fees’ and ‘contingency’ combined. One council reports that professional fees are typically calculated as 10% on construction costs, with ‘contingency’ as 5% of costs for new build, and 10% for refurbishments. Presumably ‘contingency’ means cash reserves to cover costs increases or extra services that may be needed. Is that broadly right?

If different professions have different fees within the overall figure brief details would be helpful, eg, if architects’ fees are typically 5% of total construction costs.

5. Developer’s profit margin and how long benchmarks have applied

a) For private sale units:

The Centre for London’s report, Strength in Numbers, assumes 20% of total COSTS as a generally accepted profit benchmark. One council has used 15% of total costs. Another uses 20% of gross development value (GDV) or total sales revenue, which is much higher than basing margins on costs. The consensus seems to be that accepted profit levels are between 15-20% depending on risk and project specifics. The most important thing I need to know - by far - is whether the standard is 15-20% of COSTS or SALES values because there is so much difference.

If possible it would also help to get figures on accepted benchmark profit margins for other types of housing

b) Affordable: rented and shared ownership. One borough assumes 6% for both.

c) Private rented: as lower risk than sales as the Mayor’s SPG points out.

6. Affordable Housing Values

What housing associations pay developers. Ranges or averages per square meter, or by number of bedrooms for standard sized flats, by type.

a) Social Rent

b) Affordable rent (and assumed % of market rents)

c) London Living Rent

d) Shared ownership

e) Discounted market rent

7. Demolition costs

Per square metre or unit, for blocks of flats, with differences by height of building if available and applicable.