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Development Delivery and Viability


Development Delivery and Viability

30 December 2010

The Scottish Government, 2010


Contents Ministerial Foreword

1

Executive Summary Introduction Background Rationale Methodology Key Findings Planning Solutions Funding and Finance Improving Delivery Recommendations Conclusion

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Development Delivery Research

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Background Methodology Funding constraints Occupier interest Why invigorate the sector? The planning culture check The planning system Other finance and public policy innovations Summary Recommendations Annex A – Summary of Economic Recovery Summit Annex B – Summary of Planning and Economic Development Workshop Annex C – Methodology - Details of Engagement Annex D – A step by step approach to interrogate masterplans/ business plans Glossary of Terms

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Ministerial Foreword The Scottish Government has a central, overarching purpose of creating a more successful country, through increasing sustainable economic growth. This overarching purpose has become even more important as the problems in the wider global economy pose major challenges for Scotland. This highlights the need to develop new opportunities to build on Scotland’s natural assets and deliver growth. The development sector has been hit particularly hard by the downturn, with the number of new residential build, starts and completions, down to their lowest level in decades and commercial property values, which underpin much of the financing of property and businesses in general, have collapsed by over 40% since late 2007. In the Economic Recovery Plan the Scottish Government recognised the importance that the construction sector has on the economy in relation to Gross Domestic Product and growth. The Government has investigated ways in which to support the development industry in these challenging times. Research was undertaken into the issues affecting development and infrastructure. This report sets out the findings of that research and the action that the Government has taken, which includes, investigating the potential of development charges, ensuring planning facilitates delivery of development, and identifying where appropriate action could be taken to unlock stalled sites. The Government has also launched the £50million JESSICA fund which will support regeneration, the National Housing Trust which will deliver 1000 affordable homes for rent across Scotland, and has confirmed the Tax Increment Finance (TIF) approach for the Edinburgh Waterfront. The Government has also taken action to ensure that Scotland has an effective, efficient planning system which delivers the right development in the right location. A programme of work to modernise the planning system began in 2007 and significant improvements have been made. However, changes to legislation alone cannot deliver the improvements that are needed, which is why the Government launched Delivering Planning Reform in October 2008, to ensure this results in lasting culture change. Lasting change will only be achieved through everyone in the public and private sector working together and maximising the resources, skills and innovation available to create the conditions in which Scotland’s economy can flourish.

John Swinney MSP Cabinet Secretary for Finance and Sustainable Growth

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Executive Summary 1.

Introduction

1.1

The development industry is a major contributor to the Scottish economy. The construction of housing, business and commercial space creates employment in design, engineering and construction and the buildings which result are occupied by enterprises and activities, which are vital for our economy to flourish.

1.2

The Scottish Government is committed to increasing sustainable economic growth by harnessing Scotland’s economic potential. The Government’s Economic Strategy is focussed on stimulating lasting improvements in its long-term economic performance. The Government launched its Economic Recovery Plan in March 2010 which set out the action it was taking to bring about recovery and growth. Planning was highlighted as a key driver of growth.

1.3

The global downturn has had a detrimental impact on the development sector, housing completions are at their lowest level since 1981 and the number of new starts is at an even lower level and commercial property values, which underpin much of the financing of property and businesses in general, have collapsed by over 40% since late 20071. The Scottish Building Federation estimates that over 30,000 jobs have been lost since 2008. In this climate the Government can play an important role by promoting a culture of working together and a planning system which can enable the right development in the right place, supporting sustainable economic growth.

1.4

The Government has been driving forward a programme of work to support this ambition. Part of this work included seconding professionals from GVA to undertake a nationwide audit of development activity to establish the issues facilitating and impeding development, enabling appropriate action to be identified.

1.1

Background

1.1.1 In April 2009 the Cabinet Secretary for Finance and Sustainable Economic Growth met with public and private sector interests to discuss the impact of the global downturn on the development sector. A follow up seminar was held in August 2009, to identify solutions. It brought together all key actors involved in planning, financing and delivering development. 1.1.2 The Scottish Government set up the Development and Infrastructure Partners’ Group to take forward proposals arising from the August seminar. This group consists of: Heads of Planning Scotland (HOPS), Society of Local Authority Chief Executives (SOLACE), Convention of Scottish Local Authorities (COSLA), Homes for Scotland (HfS), Scottish Property Federation (SPF), and relevant Scottish Government representatives, including Transport Scotland. Other key private sector practitioners have attended on an invitation basis.

1

Figures provided by Scottish Property Federation and Jones Lang La Salle

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1.2

Rationale

1.2.1 The first objective was to establish the underlying issues blocking and stalling development in Scotland. Two sector professionals were seconded from GVA to gather evidence on the factors which can assist or impede development. This work was overseen by the Development and Infrastructure Partners’ Group. 1.2.2 This evidence gathering added to the intelligence GVA had provided to the Government in August 2009, with its summary guide to development viability which set out the key steps to proving the viability of a scheme. (The published document “A Guide on Development Viability” can be found at http://www.scotland.gov.uk/Topics/Built-Environment/planning/modernising/cc/DViability) 1.3

Methodology

1.3.1 Between November 2009 and March 2010, GVA carried out a series of face-to-face and telephone interviews. GVA consulted over 50 key contacts involved in property development and planning in both the public and private sectors. 1.3.2 Additional subject specific sessions were also held and expertise was drawn on from across the UK. The research was peer reviewed by the Development and Infrastructure Partners’ Group, with regular checkpoint meetings held with HfS and SPF. GVA reported their findings to the Cabinet Secretary for Finance and Sustainable Growth in July 2010. 2.

KEY FINDINGS - DEVELOPMENT DELIVERY RESEARCH

The main findings from the research are summarised below: 2.1

Planning Solutions

2.1.1 The research emphasises the potential for smoother processing of Section 75 agreements (the most common planning mechanism by which developers contribute to infrastructure), and notes the publication of “Circular 1/2010: Planning Agreements” has gone some way to assist. The revised circular advocates new methods of early engagement and the use of staged or deferred payments. The research recognises the potential to develop the staged/deferred payments approach further and advocates further work on exploring how this may work. A further area for consideration is whether there is a need to provide a national infrastructure investment plan setting out the committed funding for key infrastructure projects, with this informing strategic and local development plans.

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2.2

Funding and Finance

2.2.1 One of the key constraints highlighted by the research relates to the availability of funding and finance. Specifically, the traditional model of developers’ front funding infrastructure through debt finance is currently struggling to function. There appears to be consensus among developers and funders alike that this business model is unlikely to be employed to anything like the extent it was in the short/medium term. Given this context, the research concludes that there is support for any source of funding which can support upfront infrastructure – whether that is through joint ventures, TIF (Tax Increment Finance) or other forms of finance. Likewise, an approach to assist developers’ cash flow is advocated, for example through a “pay back as you sell” method of infrastructure provision, as opposed to upfront funding 2.3

Improving Delivery

2.3.1 The research noted the progress that has been made in modernising the planning system and recognises the next stage of this is strengthening development delivery. A climate of limited financial resources will necessitate a much sharper focus on place selection for investment. The research highlights the need to enable planners and other professionals to have the skills to determine development viability. The research highlights one of the tools to do this may be the “Guide to Development Viability” which sets out the five key inputs which can be used to test the viability of a scheme. Strengthening how infrastructure need is planned is also featured in the research. The FIRS (Future Infrastructure for Required Services) approach in Aberdeenshire is noted as an example of good practice. The research concludes that further work should be undertaken to explore the potential for brokerage or the provision of a central infrastructure team which could assist in partnership working and could focus on delivery by joining masterplans with business plans in order to deliver good outcomes. 3.

RESEARCH RECOMMENDATIONS AND GOVERNMENT ACTION

3.1

The ten research recommendations from GVA are set out below along with action the Government is taking to address these:

(1) Promoting Economic Growth The Government should emphasise planning’s role in stimulating property and development, and the resultant benefits of economic growth. Action: Planning’s role as a driver to economic recovery and growth is made explicit in the Economic Recovery Plan http://www.scotland.gov.uk/Publications/2010/03/03084300/8 . Action is being taken to give this greater emphasis: • A Planning and Economic Recovery Summit was held in July 2010 (Annex A) • The Government co-hosted a working session with the Scottish Property Federation (SPF) focussed on planning and economic development (Annex B) • A follow up joint Government/COSLA working session is scheduled for 2011 • A further Planning and Economic Recovery Summit will be held in Summer 2011

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(2) Investing in Skills The Government could consider continued coaching of local authority staff on development economics/development viability skills to help ensure developments are delivered. Action: Work has already been undertaken on this issue as part of “Delivering Planning Reform” http://www.scotland.gov.uk/Publications/2008/11/05100742/0. This has included delivery of a range of skills and training events through the Scottish Government’s Planning Development Programme2 including development economics and viability. Consideration is being given to continue support for this skills requirement in 2011. (3) Assisting with Development Finance The traditional business model of upfront funding for development through bank borrowing is experiencing considerable difficulties and seems unlikely to return. Therefore, future sources of funding will need to be found. There may be a role for Government in attracting equity investors. Action: • A number of funding sources are now on stream (outlined in recommendation 4) • The Government will continue to work with COSLA and local authorities to share innovative approaches to development finance. For example, work is progressing in Fife Council to investigate potential financial models, to deliver the infrastructure required for developments. • The Government is progressing discussions with the private sector to explore opportunities for investment. • Also, Scottish Futures Trust are taking forward a new revenue financed investment worth up to £2.5 billion, to be delivered through the Non-Profit Distributing (NPD) model which will support Health, Education and Transport and will take forward the recommendations of the Independent Budget Review. (4) Rolling Infrastructure Fund A funding stream which could provide loans to developers, to enable the front funding of essential infrastructure, would assist in delivering results on the ground. Such an investment from Government would be repaid as development plots are sold, and could attract coinvestment from the private sector. Action: The Government has taken steps to assist with the financing of developments with the introduction of a number of funding initiatives: • • •

Tax Increment Finance (TIF) has now been given the go ahead to fund infrastructure to unlock development at Edinburgh Waterfront; the £50m JESSICA (Joint European Support for Sustainable Investment in City Areas) fund now established; the National Housing Trust (NHT) initiative, the first phase of which is expected to deliver 1000 new affordable homes for rent across Scotland with plans for further expansion.

2

PDP funding has been delivered by the Local Government Improvement Service to public sector planning staff over the last four years to support implementation of the Planning Etc (Scotland) Act 2006.

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(5) Planning Agreements Greater simplicity and clarity would assist Section 75 planning agreements. This might include providing more certainty over infrastructure costing and options to enable payments to be phased in order to assist with developers’ cash flow. ACTION: • Advice on planning agreements was updated in “Circular 1/2010: Planning Agreements” issued in January 2010 http://www.scotland.gov.uk/ Publications/2010/01/27103054/6. • A good practice seminar on planning agreements was held in April 2010 to share expertise. • Research work on development charges commenced in November 2010 to explore the potential of a “phased” or “tariff” style approach to infrastructure provision. (6) National Infrastructure Investment Plan An Infrastructure Plan could be published and reviewed annually to provide greater certainty on Government investment. Action: • The second National Planning Framework (NPF), published in June 2009, sets out a strategy for Scotland’s long-term development, including clear priorities for the improvement of national infrastructure. While the NPF is not a spending document, it is an input to spending decisions, not all of which are for Government. Progress in implementing the Framework is reported annually to Parliament and monitored through an Action Programme and a Monitoring Report which are available at: http://www.scotland.gov.uk/Topics/Built-Environment/planning/National-PlanningPolicy/npf/. • The NPF is complemented by the Strategic Transport Projects Review (STPR) which sets out recommendations on a portfolio of land-based strategic transport interventions and indentifies the most appropriate strategic investments in Scotland’s national transport network from 2012. (7) Better place selection Best practice guidance would assist in improving place selection, ensuring that areas selected for development or redevelopment have the potential to be developed. Action: • Further consideration is being given on how to support improved place selection, including ensuring places are well connected and provide the basis for delivering sustainable design. • The Government will continue to work with local authorities, Scottish Agencies and the private sector to take appropriate action, where this is possible, to unlock sites stalled due to specific infrastructure needs. • The Government is considering approaches to mainstream workshop-style working across Scotland, a process that has the ability to test sites and masterplan approaches through a design-led methodology informed by a wide range of stakeholders and pressures.

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(8) Central Infrastructure Team A central team could be formed to assist others with improving selection of places to develop. The team could: Play a role co-ordinating activity; Assist others in assessing the viability of potential sites; and ensure the right development occurs in the right place, with good economic outcomes. Action: The Government is exploring the potential of a “development brokerage” service as outlined in the Economic Recovery Plan. The Scottish Government is working closely with colleagues from COSLA, and across public and private sectors to ensure that any potential brokerage service adds value, and can deliver good outcomes for Scotland. (9) Masterplanning Further work could be undertaken on developing a methodology to ensure masterplans and business plans are developed in tandem. This type of development appraisal would assist in identifying viability issues early on, thus reducing the potential for sites stalling. Action: • Initial work progressing this has been undertaken as part of the Scottish Sustainable Communities Initiative (SSCI) and. • The Scottish Government is also investigating the potential of an “Infrastructure Workshop” and the possibility of running a pilot session, which will capitalise on the core principles and successes of the recent Design Charrettes. (10) Planning Delivering Developments “Development delivery” should be considered as a third line of planning modernisation in Scotland. Action: Work is underway to emphasise this as part of Delivering Planning Reform to complement the reforms made to development planning and development management, particularly in relation to Action Programmes required as part of development plans. 4.

CONCLUSION

4.1

The research has found that the global downturn has left lasting challenges for the public and private sector, particularly the availability of finance. In a climate of restricted public and private sector finance, the need to work together better and to work innovatively becomes more important than ever. The work the Government has undertaken to modernise the planning system, to make it more effective and efficient, is starting to make a difference. However, there is more to do, and local authorities, Scottish agencies and the private sector also have an important part to play to ensure lasting change.

4.2

The research has also identified that there are no straightforward solutions. In a climate of fewer resources there is a need to work collaboratively to maximise impact. The Development and Infrastructure Partners’ Group is a good example of public and private sectors working together and this must continue to make progress to ensure that the planning system promotes an “open for business” approach and delivers the right development in the right place.

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Development Delivery Research Carried out by GVA on behalf of the Scottish Government November 2009 – August 2010

The views expressed in this report are those of the researcher and do not necessarily represent those of the Scottish Government or Scottish Ministers.

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1.

BACKGROUND

1.1

Two professional staff from GVA were seconded to the Scottish Government’s Directorate for the Built Environment, from November 2009 to August 2010 inclusive to carry out an audit of issues affecting development and infrastructure across Scotland.

1.2

Because of the effect of the market downturn on planning, development and property activity throughout Scotland, GVA held some discussions on key issues with senior officials of Scottish Government’s Directorate for the Built Environment from mid 2008. In early 2009, a short seminar was held with various clients and other contacts from the development, banking, funding and property market. John Swinney, MSP, Cabinet Secretary for Finance and Sustainable Growth attended the seminar, along with the Chief Planner and various other senior officials from the Scottish Government.

1.3

This was a productive session and it was agreed that further meetings should be set up between Scottish Government (SG), Scottish Property Federation (SPF), Homes for Scotland (HfS), Convention of Scottish Local Authorities (COSLA) and other key groups to discuss the issues facing the development industry and the problems with obtaining development funding, cashflow and the delivery of development.

1.4

Whilst the stakeholder meetings were instigated, some further advice was procured by Scottish Government from GVA on development viability assessments in summer 2009. This guidance has been used in briefing Scottish Government and other local authority officials, particularly in the planning functions of Government, to explain the background to development viability.

1.5

By the end of 2009 it was apparent that many contacts in the property industry were keen to engage with Government to discuss issues they had encountered in delivering developments. There was widespread concern that the true impact of the credit crunch and the funding crisis in the financial market had not yet been fully appreciated by key decision makers in public authorities and agencies.

1.6

GVA provided the facility of one to two days a week from a director and associate3, from its Edinburgh and Glasgow offices respectively. Both were qualified town planners and active in commercial development solutions and planning consultancy throughout Scotland, across numerous public and private sector client cases.

2.

METHODOLOGY

2.1

The GVA secondees were briefed by the Deputy Director, Directorate for the Built Environment who leads on planning modernisation and investigating key aspects of development and infrastructure. The brief was to use the private sector contacts of GVA and to undertake as much face to face contact as possible throughout an information gathering period of November 2009 to March 2010. GVA engaged various different forms of approach to engage with the property sector.

3

Director: Richard Slipper, BA (Hons) MRTPI Associate Director: Alasdair Morrison, MA (Hons) Dip TP MRTPI

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2.2

The methodology conducted is detailed at Annex C:

2.3

As well as individual developers, local authorities and Government agencies/departments, the meetings included most of the key umbrella organisations in Scotland who deal with property and development related matters. This included Scottish Property Federation (SPF), Homes for Scotland (HfS), Scottish Builders Federation (SBF), COSLA, Scottish Enterprise (SE), and the Scottish Futures Trust (SFT).

2.4

The next 6 sections set out the main issues identified and some suggested solutions.

3.

FUNDING CONSTRAINTS

3.1

Private Sector Funding

3.1.1 As the secondment progressed, the mood of respondents shifted from a severe concern about bank lending and private sector sources of funding, to concerns about the availability of public sector funds, as the effects of economic recession are felt on both sides of the public and private sectors. 3.1.2 Frequent comment from most respondents was to highlight the severe restrictions on the property and development sector, particularly in relation to bank debt lending on property. Consultees pointed to the large urban ventures that had effectively closed down development from 2007/8. The global recession was generally blamed by consultees for the cessation of bank funding and the subsequent restrictions on the more ambitious and higher risk urban schemes. 3.1.3 To compound this loan finance teams in banks are preoccupied with the distress and difficulties on land assets around Scotland where there is continued bank exposure. This presents a double dilemma in terms of future funding. Most banks are likely to be engaged for some time on the problems associated with previous lending on property ventures. 3.1.4 In addition, many landowners have the expectation of a fixed price (which was agreed pre-recession) for large urban schemes. Most respondents we engaged with have made it clear that schemes will remain stalled until there is movement on the base price, or on the demand for built units and take up of space. 3.1.5 Some easement and price adjustment/rebasing of land value might be in evidence, where landowners are able to accept a lower price, or developers are able to renegotiate, but this cannot be assumed across all sites. 3.1.6 It is a general belief in the commercial property market, including banks and institutions, that from 2010 onwards, commercial banks may only re-enter the fray of finance or funding for less speculative proposals. 3.1.7 Although there are a few examples of mixed use developers enjoying upfront bank debt to pay for upfront infrastructure, many consultees believe this will never return from banking based sources of funding.

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3.2

New Emergent Forms of Funding

3.2.1 There are some early signs of longer term institutional investors looking for a return to commercial property investment in order to keep their spread of investments across the board. However, longer term investors are still unlikely to have an appetite to invest in widespread residential development as they tend to work to a narrow band of safe investments across prime located commercial developments (retail/office space/etc). 3.2.2 There are opportunities in Scotland to engage with the longer institutional investors. They are represented on the likes of the Scottish Property Federation (SPF) and it is a good time to investigate whether there are forms of de-risking, Government support or other covenants that might be brought in, which might attract more investment from the institutional sources. 3.2.3 Longer term sources of larger equity funding may be available from US, Middle East or other European countries. This is an opportunity to explore all sources of new private sector equity, however, this may require profit sharing, covenanting schemes to secure public sector support and a greater understanding, particularly in the public sector, of internal rates of return. 3.2.4 In our discussions with Scottish Futures Trust (SFT), it is clear that expert practitioners are fully engaged within SFT to try and explore as many of these new forms of funding as possible. 3.3

Reversion to Public Sector Funding

3.3.1 Although it is noted that, following Spending Review announcements, public sector sources of funding will be restricted from 31 March 2011, many of the participants in our secondment research have pointed to Prudential Borrowing, (under reasonable Chartered Institute of Public Finance and Accountancy (CIPFA) guidelines), as a key source in the current recession. Many local authorities are quite open to the prospect of Prudential Borrowing, but some remain shy to explore this source of funding for infrastructure to support their development plans, without further guidelines. 3.3.2 As we understand the guidelines at present, local authorities seeking to utilise this source of funding are expected to demonstrate revenue savings or a projected revenue income as a result of the proposed spend, with this normally being presented through a full option appraisal. We return to the issue of revenue incomes from development later in this report. 3.3.3 Perhaps the mixed response to utilising this source of funding is due to different political and executive leadership within different authorities and the need to investigate all the possible sources of both private and public sector funding before resorting to Prudential Borrowing. 3.3.4 It might be a helpful approach for the likes of the Scottish Government, Scottish Enterprise, Scottish Futures Trust and other agencies to be engaged alongside local authorities to try and find ways of investing longer term monies from public sources. Perhaps a typology of potential investment options can be better defined; from general state aid, to more innovative levels of money loaned in upfront, for payback later.

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3.3.5 There has been much discussion in our meetings about a possible national infrastructure fund, facilitated by the Scottish Government, which might operate on the basis of lending with repayment made as properties are sold/leased, with the money being reinvested on a rolling programme. 3.3.6 This concludes our overview of findings on the funding sector. Clearly, our secondment has been resourced by town planning professionals, rather than funding and finance experts. It is therefore strongly advised that the financial skills of the Scottish Futures Trust (SFT), Scottish Enterprise (SE), the banking and institutional funding sector and other experts within the Scottish Property Federation (SPF), Homes for Scotland (HfS) and others should be consulted on this critical area. 4.

OCCUPIER INTEREST

4.1

Linked to the previous section on upfront funding is the critical balance for the property and development sector of selling or letting the property once it is completed.

4.2

In our development viability advice to the public sector, “A Guide to Development Viability” GVA is advising that all property ventures normally require the critical “five P’s” to be tested: 1. The property to be secured; 2. The likelihood of a purchaser buying the final end product being duly examined and the prospect of occupier take up being identified; 3. The basic balance of the first two factors should lead to a reasonable prospect of end-out profit; 4. A risk assessment on the first three stages will critically depend upon: Planning policy; Development plan; and an eventual planning consent to convert the proposal into reality; 5. Lastly, the critical step of project delivery, with a final cross check on viability and an ability to enter a site which is consented and “build ready”.

4.3

All of the above key factors tend to hinge on the end-test of demand for the built space being created as part of the property development venture. Public policy which affects the built environment should be geared towards a careful appraisal of occupier interest. Perhaps too often, there are initiatives for planning, regeneration and new development, which have not properly assessed the market interests across the different housing, retail, office, leisure and other sectors, in order to properly gauge the likely take up of space on a land purchase or property leasing basis.

4.4

Demand remains one of the most severe concerns across all of the property contacts made during our secondment.

4.5

“A Guide to Development Viability” can be read in full at: http://www.scotland.gov.uk/Topics/Built-Environment/planning/modernising/cc/Viability. Since mid 2009 the circumstances on debt finance, cash flow and property values have all fluctuated, however, the principles detailed in this guide are still relevant.

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5.

WHY INVIGORATE THE SECTOR?

5.1

A useful question which has provided an element of challenge function to this research work is: why should Government policy or other initiatives support the property and development sector?

5.2

Most of the respondents made it clear that a national ambition to encourage economic growth may be realised by public policy supporting and welcoming new forms of development. This will create an “open for business� culture and reputation which should attract inward investment to Scotland.

5.3

Therefore, the presence of well selected sites, in good prime locations which are derisked from planning and other uncertainties is a good signal to property market funding interests and, most critically, to occupier interests.

5.4

The availability of consented and equipped built space, on serviced sites, in good locations, is a first signal to any potential occupier that a particular location is ready for development.

5.5

Reasons for supporting public investment in new infrastructure in Scotland includes targeted spending being able to deliver significant economic benefits.

5.6

There is no doubt at all that the various funding sources, development companies, occupier business and others consulted throughout our secondment wish to see a clear and simplified planning system, with an ability to deliver development and be ready for economic recovery.

6.

THE PLANNING CULTURE CHECK

6.1

Since October 2008 the Scottish Government has undertaken a programme of work to reform Scotland’s planning system. The focus of this work has been on radical changes to simplify and make proportionate development planning and development management procedures. Generally these changes have been welcomed by both public and private sectors.

6.2

There are however, some concerns remaining amongst some key players, that in some of their discussions with particular local authorities, there appears to be a complacency that the market boom will soon return and developers and planners will default to old patterns of behaviour, with a possible threat of entrenched positions and slow progress. By this, it is implied that sufficient profit will soon return to the system, which will allow ambitious planning contributions to be requested by authorities, enabling infrastructure requirements to be fulfilled once again, through the negotiation and delivery of Section 75 (and other relevant) agreements.

6.3

This is by no means widespread across all local authorities, but there is a view among consultees that some areas seem to be content with the level of growth experienced during the recent boom and that perhaps a recessionary period is a time for conservation in terms of new development, pending another upturn.

6.4

Across many other local authorities, there is a much more growth-ambitious attitude and an urgency to tackle the problems of the economic downturn and the need to address regeneration.

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6.5

The Planning Reform agenda is delivering results, there is notable enthusiasm from the private sector to engage with champions, leaders and efficient managers who are prepared to take on many new skills, in order to realise projects through to delivery.

6.6

This new enthusiasm has given rise to a popular support for the notion of “development delivery”, perhaps as a third arm of planning reform in addition to development planning and development management.

6.7

Notwithstanding the enthusiasm noted above, there is still a realism that funding is extremely tight, development viability can frequently be doubtful and the selection of prime place for carefully chosen projects continues to be a difficult task. In this connection, it is hoped that some of the recommendations for the planning system to modernise in the direction of development delivery can be taken forward.

7.

THE PLANNING SYSTEM

7.1

How the Planning System Can Assist

7.1.1 The above primary headings on our findings cover: • funding; • occupier interest; • invigorating the property sector; and • a culture check on planning. 7.1.2 Related to all of these issues are some more focused and specific devices which planning could exploit with more efficiency, greater skill and increased vigour, in order to modernise planning towards the key goal of development delivery. 7.1.3 It has been suggested by consultees, throughout this research project, that some form of best practice guidance might be issued by the Scottish Government, which can support: • the importance of the skills required to deliver developments; • the methodologies and techniques used to properly assess the viability of different urban developments and the critical steps towards implementation. 7.1.4 The headings below are not intended to follow any particular logical sequence but cover a number of key planning-related issues which have been raised in the discussion groups, meetings and feedback from the secondment. The sections below are worded in the form of GVA recommendations for best practice but they closely reflect the ideas, proposals and phrases used by those who have contributed to the secondment. 7.2

Development Viability

7.2.1 The most significant response from discussions with those engaged in development in both the private sector and public sector is the need to share more understanding of development viability in planning discussions, particularly for major urban schemes.

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7.2.2 GVA provided the Scottish Government with a summary guide to development viability in August 2009. This guide focuses on the key steps to proving the viability of a scheme; in particular the critical relationship between the gross development value and the base price payable for land. 7.2.3 The guide highlights the 5 key inputs of: • property secured • purchasers interested • profit proven • planning risk assessed • project delivered. 7.2.4 The development appraisal shows how the total value out of any development (realised when occupiers buy up all the built space) should exceed the cumulative sum of the profit, all the financing costs, professional fees, the site development costs and the “residual” price payable for the land. 7.2.5 It is recommended that various methods are employed to communicate these basic models of development appraisal and viability through the planning system. The Local Government Improvement Service has run seminars and training on these techniques. 7.3

Development Delivery

7.3.1 The result of an increased awareness and practice of development viability is to ensure the various practitioners in planning and development (in all sectors) are focussed on development delivery. 7.3.2 Many of the respondents and stakeholders believe that the planning system could benefit from a fresh approach which is focussed on the delivery of allocated, masterplanned and consented schemes. 7.3.3 This type of “place-proving” and testing could enhance the role of the planner in the decision making process and could enable more developments to be consented and brought into the ‘build-ready’ and site-start phases. The planning profession offers good skills to bring to this challenge, including an approach which can complement the technical skills necessary to ensure the delivery of development. In the longer term this approach may help to audit the stock of “effective” sites for development plan reviews and help to sift the prime development opportunities, which could then be prioritised above less and non-effective options.

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7.4

Skills

7.4.1 The essential professional skills in development delivery, to complement planning include: • Development surveyors – development appraisal, Royal Institute of Chartered Surveyors (RICS) valuation methods and funding sources; • Market agency surveyors – reports on occupier interests; • Costs/Quantity Surveyors – for detail cost plans for infrastructure etc; • Funding and legal experts – to assist on special purpose vehicles/partnerships/joint ventures etc; • Project managers; • Site engineers/civil engineers/transport planners; • Environmental/remediation experts. 7.5

Methodologies

7.5.1 Many different approaches to development appraisal can be adopted and development surveyors have proven techniques linked to land valuation, cash flow, market take up rates, rental and pricing models. Some of these have been discussed in the Development Viability Report. 7.5.2 As part of the secondment GVA had an opportunity to observe the Aberdeenshire Council-led panel which meets to discuss Future Infrastructure Requirements for Services (FIRS). 7.5.3 The FIRS approach undertakes a step by step process of due diligence across a range of development planning and development viability issues. It parallel-tracks an assessment of the urban capacity of a place with the development economics of delivering the requirements for site services. The principal behind the FIRS methodology is “no shocks” to any party in development planning and in site-proving for development. 7.5.4 The secondment also included a valuable opportunity to share some active consulting time with the Raploch Urban Regeneration Company board members to re-assess their masterplan and business plan in the context of some key issues arising from market downturn etc. 7.5.5 GVA discussed their inputs with the Raploch Urban Regeneration Company Chief Executive and fed back their findings to the SSCI team and this included a recommended step by step approach to interrogate masterplans/business plans for larger urban area schemes which have been affected by the market downturn. 7.6

National Infrastructure Plan/Programme

7..6.1 A frequent suggestion was made for more clarity at national level on committed funding for key national or major regional projects. It was suggested that a National Infrastructure Programme could sit alongside the National Planning Framework (NPF) and this could be annually updated and worked into a regional approach across the city regions and into Strategic Development Plans (SDPs) and Local Development Plans (LDPs).

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7.6.2 The Scottish Government's Scottish Infrastructure Investment Plan (2008) outlines the higher cost capital project commitments or proposals (which are in excess of £5 million) over a period of approximately 10 years. 7.6.3 Given existing and future public sector budget constraints it is likely to become essential that these projects are prioritised and their source budgets detailed. Only by doing this can the existing aspirations for infrastructure expenditure across Scotland (which is one of the drivers for the land allocated in local development plans) be fully scrutinised by private sector investors. 7.6.4 This in turn could then inform the Strategic Development Plan (SDP) and Local Development Plan (LDP) allocations and planning at a regional and local level, and tie in with the published capital programmes of local authorities and their public sector partners. 7.6.5 This approach would have the advantage of providing a clearer indication of infrastructure projects which had funding agreed and in place, with timescales for delivery made explicit. 7.6.6 We would recommend this as one of the early stage targets for the Scottish Government to consider following publication of this report. 7.7

Action Programmes

7.7.1 A natural progression from the above is to work in the details of committed funding down to the new Action Programmes for the new Strategic Development Plans (SDPs) and Local Development Plans (LDPs). 7.7.2 Action Programmes could consider a grading and phasing of development sites as follows: 1. committed sites – consented and readied for development with no residual risk on delivery; 2. sites committed by planning but doubtful by funding – with contingencies defined for de-risking the sites; 3. other sites – will be those which still require support from the planning system and details of how they will be brought to delivery. This is likely to be a mix of sites which are still subject to consents but could be assisted by bringing forward a framework, brief or masterplan which solves the planning challenges in tandem with the funding and delivery challenges 7.7.3 We would recommend that local authorities carry out the above exercise as a matter of urgency with the public and private sector organisations in their area and allocate resources accordingly across their organisation, to prioritise the delivery of those sites belonging to the first category. This would include the development planning and development management functions of local government.

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7.8

Infrastructure Funds

7.8.1 Our research revealed that there is support for any sources of funding which can support up front infrastructure. This is primarily an area more related to funding/finance than to planning. 7.8.2 From the point of view of the planning system, it will be important to advocate more active engagement by public authorities in sourcing funding, with perhaps planning authorities becoming more engaged as a participatory ‘businesses’ in delivering funded development. This could be through the use of prudential borrowing facilities, or through the use of covenants offered by the public sector in the longer term delivery of developments. 7.8.3 The planning system could increase its awareness of up front funding of infrastructure. This could then help to inform decisions on land allocations, masterplans, phasing’s and delivery plans including allowing for a “pay as you sell” approach from individual investors/developers. The requirement for this type of approach has been endorsed by most of the stakeholders in our consultation. It presents a more meaningful basis for future Section 75 Agreements and a framework for “plot tariffing” and measured development charges. 7.8.4 Like the private sector, it is likely that financial prudence and risk reduction will be key drivers to any public sector sources of infrastructure funding forthcoming in the short to medium term. Some advocate a ‘rolling’ loan fund (i.e. conditional funding up front, which is dependent upon profit sharing down stream, with repayment of loans being reinvested in further schemes on a rolling basis.) 7.9

Scotland’s “Development Prospectus”

7.9.1 Linked to the above funding issue and led by many of the more positive ideas about continued modernisation in Scotland’s planning system, it was suggested by consultees that the Chief Planner, with Scottish Enterprise and perhaps the Scottish Futures Trust (SFT) could explore a regular calendar of visits to possible sources of funding. 7.9.2 There is a case to promote the Scottish planning system as one which is ahead on its modernisation as it is simpler and more readily engaged by the development industry. It is possible to capitalise on this and consider the added value a “broker role” could provide to Scotland. 7.9.3 “Brokerage” was mentioned by the range of stakeholders interviewed. It is apparent that greater clarity is required on establishing a shared understanding of this term. The notion of planners in both the public and private sector increasing their role as brokers has been explored during the secondment. 7.9.4 The idea of senior representatives of central and local government planning teams engaging more closely with the development industry, sometimes on a site-focussed basis was supported by many stakeholders as a positive culture change.

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7.9.5 The Government undertook to investigate the potential of a ‘brokerage service’ as a commitment in its Economic Recovery Plan. A broker could potentially play a role in identifying the main urban sites in Scotland which are readied for development and could also promote the larger, approved development plan allocations, Scottish Sustainable Communities Initiative (SSCI) candidate sites, Urban Regeneration Company (URCs) areas, to a wider audience of prospective investors. 7.9.6 In its simplest form, this could be executed by means of bi-monthly meetings with the development funds present in Scotland and also the possibility of a quarterly visit to the larger London based funds, investors, developers and other brokers to explore how the Scottish planning system might help to de-risk up front funding. This could be in conjunction with the Chief Planner, Scottish Enterprise (SE) and Scottish Development International (SDI). 7.9.7 It is recommend that further work on a “Brokerage Service” includes: • • • •

Providing clarity on whether the primary approach will be on allocated sites, identified by the property industry as prime, which might be distressed or blocked from implementation; Employing the methodologies and other skills and ideas noted above; Exploring whether brokerage can help out earlier in the planning pipeline, for example, at the “call for sites stage” in LDPs; Looking at an expansion of this role to a more fully resourced support team.

7.10 Plot Tariffing/Section 75 Agreements 7.10.1 Previous approaches to Section 75 agreement negotiations have been widely criticised in the discussions we have carried out as part of this research. Criticisms specifically relate to stand-offs and delays for costings, tolerance testing and legal drafting. The publication of “Circular 1/2010: Planning Agreements” has assisted in clarifying the “fair and reasonable” tests for Section 75 Agreements. The revised circular also advocates new methods of early engagement and set development charges. 7.10.2 An efficient approach to planning infrastructure is also well rehearsed in the Aberdeenshire Future Infrastructure Requirements for Services model (FIRS) and by many other planning authorities which are more active in urban expansion sites. Various “tariff” type approaches have also been explored, and the key principles examined as part of the evidence gathering of our work. These include, examples from England prior to the proposed Community Infrastructure Levy (CIL) being brought into use. 7.10.3 It is recommended that further work be undertaken on: • Obtaining clarification on funding for overall infrastructure commitments for defined areas; • Precise costing calculations on standardised unit amounts of infrastructure (eg a road cost is £X per linear metre, a sewage works £X per volume handled, a school rated at £X per sq metre, etc) – Scottish Futures Trust (SFT) and others have suggested this type of benchmarking is the most sensible way forward for infrastructure planning and design;

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• • • •

Establishing close links between the development plan’s allocated sites and urban expansions and a business model for the front funding and repayment of investment, with payments being made as each plot is sold; Assessing methods of payment by future unknown beneficiaries; Recommending methods of combining the above into a best practice for defining “measured development charges” which are fairly and reasonably related by site; Assessing whether the tolerance for development charging is too weighty for the private sector land economics to bear the burden of costs – and if so, identifying where there might have to be assistance with gap funding.

7.11 Central Infrastructure Team 7.11.1 A more ambitious plan for the “brokerage” concept would be to establish a “central infrastructure team”, in central Government. This team would have the benefit of harnessing all the skills, methodologies and approaches and centralise the best practice. But it would also act at a national and local level, for instance holding meaningful panel hearings into difficult sites and cases of frustrated delivery. 7.11.2 The secondment raised many examples of good practice and the methods employed by the likes of the FIRS panel and also by ATLAS (Advisory Team for Large Applications) and other exemplars south of the border have been impressive. We have also learned from our own workshop approach with the Raploch Urban Regeneration Company exercise and we believe that the skills of the development viability analyst could be introduced in this way (example of methodology used at Annex D). 7.11.3 Most respondents suggested that a central infrastructure team would work to best effect if its role regularly reported to a Government Minister-led team, which had access to funds or had the ability to realign public sector budgets where necessary. The team could focus on where serious efforts are being made to prove the case for development and for development assistance. Most private sector interests believe that this would add some vigour to public/private partnerships precipitating closer collaborative working on clear masterplans and business plans, to deliver effective solutions. 7.12 Prime Place Selection 7.12.1 There is much debate about where resources for new development and infrastructure should be focussed. The development industry has a clear view on prime siting and this normally gravitates to places located with strong connections to existing people movement, where new places and public realms will succeed, and where occupier take-up of built space will be more prolific. This is not an exacting method of place selection and the skill of the successful investor/developer is to have the vision to see such places emerge from some intelligent approaches to movement, spaces and buildings which can establish a successful new pitch. 7.12.2 There is a priority to focus where the risks of moving people into new space are lessened and this has a direct link back to occupier demand. This focus can be diluted in times of economic boom, where activity is ‘over-heating’ the over-prime areas. But in a downturn this principle is the first priority for all investors. All the respondents we spoke with have urged that any new policy initiatives should recognise the central importance of prime site selection. Economic recovery will be most effectively served

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by identifying the prime places and secondary places which can be developed, with resultant benefits felt downstream. 7.12.3 The challenge is to try to align this kind of prime site sustainability in financial return and risk terms with prime locations for sustainable development in terms of the built environment. 7.12.4 New policy approaches by planning authorities and their public sector partners need to align with this definition of “prime” at a local level, which will see resource attributed to ensuring the success of development delivery in these locations and the local economic benefits that will undoubtedly accrue. 7.13 Consenting and Readying Sites 7.13.1 Most of the focus on the above issues is linked to the more ambitious approach towards the re-capture of debt funding to drive development and to try and stimulate economic growth and promote occupier take up of built space. The feedback discussions have highlighted the lack of larger scale developers who are prepared to speculate on the larger sites with long term visions. 7.13.2 A simple approach to de-risk sites is to work harder at the consenting and readying of sites. During a market upturn there are many speculative proposals for new development sites which take the planning application process up to the full design detail stage for full consenting, herefore presenting the site as “build ready”. 7.13.3 These speculators drive the system, by implementing the allocated sites, testing policies for added sites and, sometimes, challenging the system to deliver new kinds of sites and developments. 7.13.4 In the market recess, this activity is stalling and it is our assessment that the key players are therefore likely to eschew the outlay on readying a site until the uncertainty passes on other parts of their business view. 7.13.5 The planning system, development function, enterprise network and others in the public sector can work with private sector interests to look at ways of advancing more work on consenting and readying sites for development. The “entry-ready” sites in prime places will be the first to attract take up and the economic recovery will run first to the de-risked and readied sites. It is our view that these sites should be identified by local authorities for willing investors. 7.13.5 This might be a more low-exposure funding outlay for the likes of infrastructure funds and it could work with some new urgency on, for example: • • •

Distressed sites which are blocked by a Section 75 agreement proviso which has become unrealistic; Could local authorities re-test their own tolerances and quality aspirations, to redefine their specifications for hard and soft infrastructure; Development briefs and masterplans can promote a site to a more certain level in the decision process;

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• •

Major applications are now incurring an advance 12 week period for consultation. This delay could be dealt with by advancing an outline scheme for a permission in principle and pre-consenting the main elements of a site; Revising and reviewing existing land use allocations to reflect market realities in terms of delivery.

7.13.6 These advance consenting moves could all be considered by planning authorities themselves and others in the Scottish Enterprise network and perhaps Scottish Government could deploy central teams. 7.14 Market Sectors for Priority Actions 7.14.1 Another topic is the ability of local authorities to monitor and engage with market sectors. Liaison with private sector interests is now becoming more strongly established under the leadership of the Chief Planner but there could be further efforts to monitor and report on different property market sectors which might be more resilient to recession and capable of delivering development. 7.14.2 Recent months have seen a focus on reviving the housing markets with the publication of “Fresh Thinking, New Ideas”4 from Scottish Government. There are some signs of private sector housebuilding returning and there are hopes that the social rented and shared equity formats will assist this residential sector. 7.14.3 From our ongoing private practice we are aware that efforts are being targeted at onshore supply chain development issues for the offshore renewable energy industry and initiatives such as the National Renewables Infrastructure Plan and Fund (NRIP) & (NRIF) are welcomed by investors and developers in this field. The NRIP and similar policy initiatives are taken as meaningful signs of Scotland being open for business and ready to implement. Similar sectoral initiatives could help other areas of the development market. 8.

OTHER FINANCE AND PUBLIC POLICY INNOVATIONS

8.1

Public Policy

8.1.1 Though the main emphasis of the recommendations to Scottish Government are in the realm of town planning legislation guidance and best practice, it should be noted that the research, discussions and findings throughout the secondment have highlighted numerous other themes, ideas and possible innovations which can complement the planning system. However, these are primarily in other areas of public policy, particularly relating to finance and funding issues. 8.1.2 There are skills, experience and professional practitioners in the financial, legal, housing, project delivery and other sectors, which might help to implement some of the ideas below. However, we do wish to record some of the complementary themes which are relevant to development delivery.

4

http://www.scotland.gov.uk/Publications/2010/06/25144849/0

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8.2

Partnerships

8.2.1 As well as the traditional forms of joint venture partnerships, particularly between a private sector venture with a public sector undertaking/covenant to support a scheme, there are various other forms of emergent partnerships. Local authorities are increasingly offering the certainty or covenant of a local property or other fixed asset in an Asset-Backed Vehicle. 8.2.2 Critically, the public sector market is keen to communicate with public sector policy makers on innovations such as Asset-Backed Vehicles. They have the ability to identify upfront funding for a longer term return, based upon steady, stable income flows. We have spoken to leading legal practices in Scotland, funding sources and brokers who have put together infrastructure funds in the past. All of these sources are keen to point out the importance of backing a joint venture partnership with the certainty which the public sector can bring, in terms of longevity of commitment, the presence of an asset, and ideally the take up of built space over time. Balanced against this, is the ability of the private sector to bring various funding sources and a cashflow to help the development proposition work over the medium to longer term. 8.3

Tariffing – Various Forms

8.3.1 Most of the recommendations on tariffing of development plots are set out in the previous section. However, it is important to note that the location of development sites by a measured amount of funding to contribute to larger scale infrastructure can involve significant innovations in funding sources and financing models. In particular, the FIRS model in Aberdeenshire has been examined in detail and this is being extolled across various different forums in Scotland. 8.3.2 Critically, it appears that the more successful plot-tariffing model hinges on the availability of upfront funding, for a pay-back later on a “pay as you sell basis�. 8.4

Tax Increment Financing

8.4.1 A Tax Increment Financing (TIF) model has been gathering pace, whilst the secondment was underway. American TIF models have been explained in detail by commercial advisors, lawyers and others who are active in Scotland on possible pathfinder cases. It appears that the ability to capture non-domestic rates over the longer term to pay back an initial upfront infrastructure cost is a device which can be implemented with relative ease in Scotland. Therefore, some exploratory cases are underway at Buchanan Galleries in Glasgow, Waterfront Edinburgh and at Ravenscraig with other potential locations under consideration. 8.5

Infrastructure Loan Fund

8.5.1 The earlier section in this report on funding highlighted the widespread concerns on the absence of the more traditional bank-sourced debt financing for development. As a result, many in the property sector are suggesting that there has to be some refreshed thinking across the board of both the private and public sector, in particular, to investigate how national infrastructure funds might be made available for larger projects.

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8.5.2 One particular suggestion is that a rolling or revolving infrastructure fund might be set up on a lending basis, with funds sourced on favourable rates upfront from public sector sources and a critical site selection and candidate-testing undertaken to assess appropriate cases for investment of capital. This capital might be sourced through public sector devices and loaned in on the basis of a “pay as you sell� approach. 9.

SUMMARY

9.1

This concludes the findings and recommendations in relation to the secondment work undertaken for Scottish Government through late 2009 to mid 2010.

9.2

There is no doubt that, along with the rest of the UK, Scotland finds itself in a lengthening period of recession in the commercial and residential/mixed use property market. There are severe concerns throughout all the different umbrella organisations across the private sector industry in Scotland and there is a continued call for public policy innovations, proposals and new approaches which can help to deliver development on the ground, in well selected prime locations which will contribute to sustainable development and economic growth. Ultimately, there is an interesting challenge to try and twin the definition of sustainable development and sustainable economic growth.

9.3

Various proposals have been presented in this summary report and it is hoped that this will be helpful to the Scottish Government in formulating a way forward.

10.

RECOMMENDATIONS

10.1

Promoting Economic Growth The Government should emphasise planning’s role in stimulating property and development, and the resultant benefits of economic growth.

10.2

Investing in Skills The Government could consider continued coaching of local authority staff on development economics/development viability skills to help ensure developments are delivered.

10.3 Assisting with Development Finance The traditional business model of upfront funding for development through bank borrowing is experiencing considerable difficulties and seems unlikely to return and therefore, future sources of funding will need to be found. There may be a role for Government in attracting equity investors. 10.4

Rolling Infrastructure Fund A funding stream which could provide loans to developers, to enable the front funding of essential infrastructure, would assist in delivering results on the ground. Such an investment from Government would be repaid as development plots are sold, and could attract co-investment from the private sector.

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10.5 Planning Agreements Greater simplicity and clarity would assist Section 75 planning agreements. This might include providing more certainty over infrastructure costing and options to enable payments to be phased in order to assist with developers’ cash flow. 10.6 National Infrastructure Investment Plan An Infrastructure Plan could be published and reviewed annually to provide greater certainty on Government investment. 10.7 Better place selection Best practice guidance would assist in improving place selection. Ensuring that areas selected for development or redevelopment have the potential to be developed. 10.8

Central Infrastructure Team A central team could be formed to assist others with improving selection of places to develop. The team could: Play a role co-ordinating activity; Assist others in assessing the viability of potential sites; and ensure the right development occurs in the right place, with good economic outcomes.

10.9 Masterplanning Further work could be undertaken on developing a methodology to ensure masterplans and business plans are developed in tandem. This type of development appraisal would assist in identifying viability issues early on, thus reducing the potential for sites stalling. 10.10 Planning Delivering Developments “Development delivery� should be considered as a third line of planning modernisation in Scotland.

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BACKGROUND AND INFORMATION SOURCES ANNEX A – Summary of Economic Recovery Summit ANNEX B – Summary of Planning and Economic Development workshop ANNEX C – Methodology - Details of Engagement ANNEX D – A Step by step approach to interrogate masterplans/business plans GLOSSARY OF TERMS

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ANNEX A PLANNING AND ECONOMIC RECOVERY SUMMIT, 15 JUNE 2010 Focus of Event The Scottish Government’s Economic Recovery Plan, published in March 2010, identified planning as a key contributor to accelerating the economic recovery in Scotland. A commitment in the plan was to hold a Planning and Economic Recovery Summit focusing on the priority areas where we need to direct our collective efforts to bring about greater improvements to stimulate economic growth, and provide an opportunity to discuss the long term agenda for planning and how we can further drive performance to deliver results. This was the first meeting of its kind, bringing together representatives from government, business, agencies and local authorities to focus on the importance of aligning efforts to accelerate the economic recovery. Discussion points The summit then discussed the following key points: • Recognising the key link between planning and economic recovery and that planning reform had made significant inroads in terms of culture but that there was still work to be done to realise the potential contribution of planning. • The new financial context means different development types, scale and pace and a different ability to fund large scale, up-front infrastructure. This will be the norm for many years to come and improved co-ordination of all involved will be required to tackle such challenges, including looking at priorities for Scotland in terms of competiveness and new methods of funding. • The need to work together is more important than ever and collaborative approaches to problem solving can be successful involving all parts of authorities, agencies, developers and importantly the local community. It was stressed that both local authorities and developers want to see development happen and that it was important to understand and tackle blockages where these occur to allow this to happen. • The importance and challenges of resourcing planning effectively particularly as the economy emerges from recession, including ensuring planning schools are able to produce a supply of new graduates with the right skills. • By the nature of the service people will on occasion have complaints about planning decisions. There was a recognition this is sometimes inevitable as hard decisions often have to be made but it is not acceptable where complaints relate to poor processes holding up decisions. Summing up and next steps The discussion was then concluded by highlighting that there had been good progress but that further sustained effort was required from all involved in planning and development to ensure planning fully contributes to economic recovery and sustainable growth. The four key points which will be taken forward by Scottish Government and public and private sector partners. •

Further work should be undertaken in relation to Section 75 agreements, strengthening their effectiveness to help facilitate development in the new economic context.

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• •

The importance of moving to a collaborative approach to planning rather than a series of sequential stages. He was supportive of the changes that agencies had made to their engagement on planning issues and he also indicated that with fewer applications there was an opportunity to get things right with all parties fully engaged. The importance of the link between resources, fees and performance. Previous ideas that unless you spend more money it won’t get better have changed. Do more for less has to be the new approach. Culture change remains a fundamental issue with all having a role in achieving this and ensuring planning is fundamentally linked to economic development, in particular he highlighted a role for new planners coming through the planning schools bringing new energy to the service.

Finally it was agreed that there would be a further event in 12 months to review progress and achievements. Note: This summary paper has been prepared by the Scottish Government and does not necessarily represent the views of individual attendees at the Summit. Organisations Represented COSLA Society of Local Authority Chief Executives Heads of Planning Scotland Scottish Enterprise GVA Scottish Environment Protection Agency Scottish Natural Heritage Scottish Council for Development & Industry Homes for Scotland Scottish Water Institute of Directors Scottish Local Authority Economic Development Group Confederation of British Industry Scotland Scottish Property Federation Highlands and Islands Enterprise Scottish Government’s Regulatory Review Group Scottish Building Federation Scottish Retail Consortium Scottish Government Historic Scotland Transport Scotland

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ANNEX B SCOTTISH GOVERNMENT AND SCOTTISH PROPERTY FEDERATION BREAKFAST MEETING Date: 1 st October 2010 Chaired by: Deputy Director, Directorate for the Built Environment, Scottish Government The purpose of the meeting was to examine key actions that could be taken to ensure planning plays a full role in economic recovery. The meeting built on the discussions held at the Planning and Economic Recovery Summit in June 2010 with John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth and Stewart Stevenson MSP, Minister for Transport, Infrastructure and Climate Change SUMMARY OF DISCUSSION The meeting then discussed the following key points: •

How to give greater emphasis to the importance of economic development in the planning system, including the need to ensure that the message that Scotland is “open for business” is communicated effectively at all levels. There were a range of views as to the benefits of a statutory basis for economic development. The good practice that already exists across Scotland and in particular the approaches taken by Glasgow who actively meet with developers/investors to discuss what opportunities exist in Glasgow; Scottish Borders who have dedicated business officers and Local Economic Development Forums. The pre-application system of Highland Council was also discussed as a positive approach The meeting recognised that small businesses will be key to the economic recovery and will increasingly make up a large percentage of applications and that there should be consideration as to how the planning system can support small businesses. Ensuring planners were skilled in economic development. There was also discussion around how the SG can assist, in addition to the work that has been carried out on the skills agenda in relation to planning reform, working on aspects such as development economics and viability. The processing of applications. The meeting discussed the need to be more proportionate in the information which is submitted and requested during the planning process. It was suggested that it could be beneficial for developers to share reports especially when they cover the same area and there was sometimes a need for better co-ordination between agencies and local authorities. It was suggested that it would be beneficial for developers to have a single point of contact throughout the planning process to ensure consistency of approach. There was a discussion on what actions the private sector could take to contribute to a more efficient and effective process. There was a discussion about the quality of applications that are submitted and the need to ensure that all the information that is required to validate an application is submitted and in some cases applications which have little chance of success, for instance they do not accord with the development plan, are not submitted. The new system for development plans will

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Infrastructure is still a key issue. The group recognised that funding to provide infrastructure that is essential for developments to proceed is difficult to obtain and there is a need to continue to investigate new funding mechanisms. It was also suggested that standards would need to be re-assessed. However, the needs and expectations of communities are key and there was a question whether lower standards would be accepted by them, particularly as they may be resistant to development generally.

SUMMING UP The discussion was concluded by reflecting on the key areas to be taken forward by both public and private sector partners. • • • •

• •

Maintain progress and momentum on the work that is being taken forward by the Development and Infrastructure Partners’ Group. Scottish Government to discuss with public sector colleagues the merits of a Statutory Duty for Economic Development. Regardless of this ensure Economic Development is given prominence in any publications. Scottish Government to publish their response to the Development Audit work carried out by GVA and publish the work they produced on Development Delivery/Viability. Scottish Government to explore whether there is potential to offer additional training on development viability and development finance to Planners (with possible involvement of SPF members) and a session for/on small businesses about development management including permitted development rights The Scottish Property Federation and local authorities to explore opportunities of working together to improve the quality of applications which are submitted. COSLA to convene a further session with attendees and others involved in planning process to discuss the issues raised further and in terms of practical solution. This event would be programmed for early 2011.

Note: This summary paper has been prepared by the Scottish Government and does not necessarily represent the views of individual attendees. Organisations Represented Scottish Property Federation COSLA Heads of Planning Glasgow City council Scottish Enterprise Federation of Small Businesses Confederation of Business and Industry Society of Local Authority Economic Development Group Scottish Government

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ANNEX C METHODOLOGY - DETAILS OF ENGAGEMENT Consultation 1. Nov 2009 – March 2010 – Face to face meetings with more than 40 individuals or organisations involved in property, development and planning in both the private and public sectors. Telephone interviews, email and correspondence contact with key players in the market. Reporting 2. November, December 2009 and May 2010 – Checkpoint meetings with representatives of Scottish Property Federation and Homes for Scotland to conduct professional peer review 3. December 2009, March, May and June 2010 – Scottish Government Development and Infrastructure Partners’ Group meetings chaired by the Deputy Director, Directorate for the Built Environment. Gathering Good Practice 4. November 2009 – attendance at the panel group meeting of the Aberdeenshire Future Infrastructure Requirements for Services (FIRS) team. Workshops 5. March 2010 Developer Agreements Good Practice Workshop, held in Stirling, on the details of “Circular 1/2010: Planning Agreements” and the key factors affecting developer contributions and Section 75 Agreements. 6. May 2010 – case comparison workshop on methods of development finance with English case studies being presented and discussed with Scottish practitioners. 7. May 2010 – workshop with Scottish and English practitioners to share best practice in development and infrastructure delivery. Strategic Events 8. January 2010 – attendance at the 5 Administrations Meeting with national heads of planning from the UK and Ireland. 9. January 2010 – meeting with experts on finance and funding within the Scottish Government. 10. May 2010 – meeting with the SSCI team. 11. May 2010 – presentation to an SSCI learning event at Raploch Urban Regeneration Company. 12. June 2010 – the Planning and Economic Recovery Summit – presentation to John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth and Stewart Stevenson MSP, then Minister for Transport, Infrastructure and Climate Change. 13. July 2010 – Report back to the Cabinet Secretary for Finance and Sustainable Growth.

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ANNEX D STEP BY STEP APPROACH TO INTERROGATE MASTERPLANS/ BUSINESS PLANS

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GLOSSARY OF TERMS Section 75 – planning agreements made under Section 75 of the Town and Country Planning (Scotland) Act 1997 are the most common planning mechanism by which developers contribute to infrastructure Prudential Borrowing – Lending obtained from the Public Works Loan Board which is secured against future revenue income. Tax Increment Finance (TIF) – Is a means of funding investment in infrastructure. TIF uses future additional public sector revenue gains from taxes to finance borrowing. National Housing Trust (NHT) – The National Housing Trust initiative is a joint partnership scheme between the local authority, developers, the Scottish Futures Trust and the Scottish Government which will stimulate the development of newly-built houses, with council loans for the scheme underwritten by the Scottish Government. JESSICA (Joint European Support for Sustainable Investment in City Areas) – A new £50 million fund to support urban regeneration in Scotland. The JESSICA fund brings together Scottish Government resources with funding from the European Commission's European Regional Development Fund (ERDF) to support regeneration and economic development in Scotland's most deprived urban areas. ATLAS (Advisory Team for Large Applications – A team which guides stakeholders through the town planning process (England and Wales) in relation to large, complex or strategic development projects. Asset Backed Vehicles – Proposal where the local authority contributes land as well as capital funding into a joint venture with a developer who makes up the funding shortfall. Profit from any sale or rent is then shared between local authority and developer. Scottish Sustainable Communities Initiative – Government programme launched in 2008 to address the needs of those on lower incomes and help to create sustainable, mixed communities across the country. Design Charrette – A 'Charrette' is an interactive and intensive multi-disciplinary event that engages local people with experts to develop designs for their community. It is a handson approach where ideas are translated into plans and drawings. Charrettes involve a series of interactive design workshops held over a number of days where the public, local design professionals and project consultants work together on developing a detailed masterplan for a site. National Planning Framework (NPF) – The NPF guides Scotland's spatial development to 2030, setting out strategic development priorities to support the Scottish Government's central purpose - promoting sustainable economic growth. Strategic Development Plans (SDP) – The 4 largest city regions in Scotland (Edinburgh, Dundee, Glasgow and Aberdeen), are required to produce Strategic Development Plans which addresses land use issues that cross local authority boundaries or involve strategic infrastructure.

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Local Development Plans (LDP) – Development plans guide the future use of land and the appearance of cities, towns and rural areas. They indicate where development, including regeneration, should happen and where it should not. Strategic Transport Projects Review (STPR) – STPR sets the Scottish Government's 29 transport investment priorities for the next 20 years, identifying those recommendations that most effectively contribute towards the Government's purpose of increasing sustainable economic growth. Future Infrastructure for Required Services (FIRS) – The FIRS approach is founded on the principle of early dialogue with the development industry. For major planning applications the applicants are encouraged to hold informal early discussions with as many consultees as possible at one meeting to inform the development industry of the infrastructure requirements and how they will be funded. National Renewables Infrastructure Plan (NRIP) – The plan supports the development of a globally competitive offshore renewables industry based in Scotland. The plan outlines the investment required to deliver Scotland's ambition to become a premier location for the manufacturing and deployment of wind turbine and marine energy devices. National Renewables Infrastructure Fund (NRIF) – The National Renewables Infrastructure Fund (N-RIF) has been established to support the development of port and near-port manufacturing locations for offshore wind turbines and related developments including test and demonstration activity, with the overall aim of stimulating an offshore wind supply chain in Scotland and will follow the clear approach set out in National Renewables Infrastructure Plan (NRIP). Economic Recovery Plan (ERP) – The ERP sets the Scottish Government’s priorities to accelerate the economic recovery in Scotland and increase sustainable economic growth. This includes development of a low carbon economy, supporting internationalisation, further improvements to the planning system, managing labour market pressures, a renewed focus on commercialisation, and improved access to finance. Community Infrastructure Levy (CIL) – It allows local authorities in England and Wales to raise funds from developers undertaking new building projects in their area. The money can be used to fund a wide range of infrastructure that is needed as a result of development. This includes transport schemes, flood defences, schools, hospitals and other health and social care facilities, parks, green spaces and leisure centres. Homes for Scotland (HfS) – HfS represents the country’s private home building industry Scottish Property Federation (SPF) – SPF is a membership organisation devoted to representing the interests of all those involved in commercial property ownership and investment in Scotland. Scottish Building Federation (SBF) – SBF is the lead voice of the Scottish construction industry,

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Scottish Futures Trust (SFT) – SFT is the independent company responsible for improving value for money in public infrastructure investment projects such as schools, transport, health and regeneration. Scottish Enterprise (SE) – SE is Scotland's main economic, enterprise, innovation and investment agency which helps ambitious and innovative businesses grow and become more successful. They also work with public and private sector partners to develop the business environment in Scotland. Scottish Development International (SDI) – SDI offers help and advice to companies looking for the ideal investment location for their business and provides a range of services for businesses thinking about entering the overseas market.

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© Crown copyright 2010 ISBN 978-0-7559-9898-2 (web only) APS Group Scotland DPPAS11066 (12/10)

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Development Deliveryand Viability