Appendix 2 – Financial Contributions
A2.1 This appendix illustrates the method for the calculation of affordable housing financial contributions.
(1) A2.2 The methodology used builds on previous work undertaken by Dixon Searle Partnership (DSP) for the Cambridge City Council (CCC) Local Plan Review Community Infrastructure Levy (CIL) viability assessment (February 2013) and Supplementary Report, ‘Small Sites Affordable Housing Viability’ (June 2013).
Methodology
A2.3 The methodology involves estimating broadly the value of the land plot(s) or part plot(s) on which affordable housing would be provided, if it were being provided on site.
(1) A2.4 Table 3 illustrates broadly the value levels of housing in Cambridge by ward (in £/sq. m terms and based on assumed dwelling sizes). This data was gathered using a robust evidence base, which was used to inform the Community Infrastructure Levy Viability Assessment (2013) (Found in Appendix 3 of the Community Infrastructure Viability Assessment 2013). A range of factors and data were used to assess and develop the value levels in Cambridge including:
- An overall residential market review (by ward based areas): using property advertised for sale/including sold subject to contract from rightmove.co.uk;
- DSP New-build housing research: based on marketing prices and DSP trial adjustments;
- Zoopla research residential information:
- Research Feedback Log and Stakeholder Consultation: gathered from various agents and developers operating in Cambridge;
- Other property information (economic and market context and trends, house-price trends, etc.): from the bank of England, Royal Institution of Chartered Surveyors (RICS) Housing Market Survey, Land Registry
Table 3 – Value levels of housing by ward
| Value Level | Value (£/sq.m) | 1-bed flat | 2-bed flat | 2-bed house | 3-bed house | 4-bed house |
Indicative Settlement Relationship to Value Level |
||
|---|---|---|---|---|---|---|---|---|---|
| VL 1 | £2,500 | £125,000 | £175,000 | £207,500 | £124,000 | £312,500 | Cherry Hinton / Kings Hedges | Falling Market from typical current lower-end | |
| VL 2 | £3,000 | £150,000 | £210,000 | £249,000 | £288,000 | £375,000 | Arbury / Abbey / East Chesterton / Romsey | Coleridge / West Chesterton | |
| VL 3 | £3,500 | £175,000 | £245,000 | £290,500 | £336,000 | £437,500 | Trumpington / Petersfield | ||
| VL 4 | £4,000 | £200,000 | £280,000 | £332,000 | £384,000 | £500,000 | Queen Edith’s / Castle | ||
| VL 5 | £4,500 | £225,000 | £315,000 | £373,500 | £432,000 | £562,000 | Improving market from current typical / mid-range | ||
| VL 6 | £5,000 | £250,000 | £350,000 | £415,000 | £480,000 | £625,000 | Market / Newnham | ||
| VL 7 | £5,500 | £275,000 | £385,000 | £456,500 | £528,000 | £687,500 | Upper end (noting that some instances exceed this) / improving market higher values | ||
Note: For wards which span one or more VL (Value Level), the council will apply the lowest value level for that ward, when calculating affordable housing contributions.
A2.5 DSP then determined the floorspace per dwelling type by applying the figures at Policy 50 of the Cambridge Local Plan 2014: Proposed Submission document.
A2.6 Using the Value Level (VL) of housing by ward, based on the number of bedrooms (Table 3) and dwelling size assumptions based on Policy 50, the following calculation was applied to determine the financial contribution (£) per square metre towards affordable housing provision:
(1) Example scenario:
Step 1 (market sales value (GDV) starting point):
2 unit market scheme:
1 x 2 bed house at 83 sq. m @ CIL study VL 3 i.e. MV (market
value) £290,500, and
1 x 3 bed house at 96 sq. m @ VL 3 i.e. MV £336,000
Gross Development Value (GDV) total = £626,500 based on 179 sq. m new housing.
Step 2 (estimate the land value associated with that by using the RLV% calculation, then add acquisition and servicing allowance):
Residual land value (RLV) before affordable housing is estimated at 30% of Market Value (MV)
MV (sale value of 2 houses) £626,500 x 30% (0.30) = market plot value estimate (with no affordable housing) = £187,950.
Add 15% (£28,192.50) for land acquisition & preparation costs = £216,142.50.
Step 3 (consider the affordable housing (AH) % and application of the sum):
Assuming a 10% equivalent proportion of affordable housing = 0.1 x £216,142.50 = £21,614.25 financial contribution level.
= contribution equivalent to £120.75/sq. m (say £120/sq. m).
Further details explaining the calculation
A2.7 Gross Development Value refers to the total value achieved on sale of the completed development.
A2.8 The Residual Land Value % used in the above calculation is 29.9%. This is rounded to 30% for simplicity. It is arrived at by carrying out a series of small site appraisals using fairly simple residual land valuation and on the basis of schemes providing no affordable housing on-site.
A2.9 15% uplift. Is used to reflect a contribution that the registered provider/council normally also benefits from (also costs the developer) in the scenario of the developer being reimbursed for reasonable build costs; because the developer will also have committed expense to make the site available and ready for development – i.e. acquisition and servicing costs. It is reasonable to consider that an allowance should be made for these costs, again to “replace” the land value and related subsidy that that would have been provided in an on-site affordable housing scenario.
A2.10 The affordable housing equivalent proportion (% target) is then applied. In the example calculation above, a 10% affordable housing contribution has been applied to illustrate the affordable housing contribution for sites providing 2 to 9 dwellings. Where used exceptionally for sites providing 10-14 and 15 plus dwellings or for top-up financial contributions, a 25% or 40% contribution, respectively, would be applied at this stage of the calculation.
A2.11 The above methodology concludes that potential financial contributions per square metre for sites providing 2 to 9 dwellings are as illustrated in table 4 (below) and are consistent across all combinations of housing mix, type and tenure.
Table 4 – Financial contributions for developments providing 2 to 9 dwellings
|
Value Level (VL – as LP CIL Study) |
Value (£/sq.m) |
Affordable Housing Financial Contribution (Viewed in £ / sq. m of private accommodation) |
|---|---|---|
| VL 1 | £2,500 | £86 |
| VL 2 | £3,000 | £104 |
| VL 3 | £3,500 | £120 |
| VL4 | £4,000 | £138 |
| VL 5 | £4,500 | £155 |
| VL 6 | £5,000 | £173 |
| VL 7 | £5,500 | £190 |
How to calculate an affordable housing contribution for proposals of 2 to 9 dwellings
A2.12 Applicants will calculate affordable housing contributions as follows.
- Step 1: Calculate the overall floorspace for the proposed development
- Step 2: Assess which value level (VL) your development falls into using Table 3.
- Step 3: Apply the Affordable housing contribution to the floorspace using Table 4
A worked example illustrates the calculation below.
Step 1: Calculate the overall floorspace for the proposed development
The site proposes 3 no. 2-bed houses and 2 no. 3-bed houses, based in Cherry Hinton.
Calculate the overall floorspace for the development (for demonstrative purposes the residential space standards in Policy 50 of the Cambridge Local Plan 2014: Proposed Submission have been used), this equates to:
(3 x 83) + (2 x 96) = 441 sq.m
Step 2: Assess which value level (VL) your development falls into, using table 3.
The development is in Cherry Hinton. Table 3 states that properties in Cherry Hinton fall into Value Level (VL) 1 and 2. For wards which span one or more VL the council will apply the lowest value level for that ward, when calculating affordable housing contributions. Therefore for the purpose of this calculation only Cherry Hinton is classed as VL 1.
Step 3: Apply the Affordable Housing Contribution to the floorspace using table 4
Table 4 above illustrates that financial contributions for VL 1 properties are £86/sq.m.
441 sq.m x 86 = £37,926
Therefore the affordable housing financial contribution required for the development is £37,926
How to calculate an affordable housing contribution for 10 or more dwellings (top-up financial contributions where use of the affordable housing policy % produces fractions of units)
A2.13 On sites of 10 units or more developers will be expected to deliver whole units on site with financial contributions provided for fractions of units. Therefore financial contributions in respect of the shortfall in on-site affordable housing provision against the policy percentage will be calculated as follows.
- Step 1: Calculate the basis of the financial contribution required.
- Step 2: Calculate the sq. m floorspace applicable to the financial contribution calculation (dependent on unit type that would have been allocated for affordable housing).
- Step 3: Assess the relevant VL (Value Level)
- Step 4: Apply the VL to the relevant floorspace from step 2
- Step 5: Apply the RLV % (30%) and then the 15% uplift to arrive at the top-up financial contribution to be made to balance the on-site shortfall.
A worked example illustrates the calculation below.
Step 1: Calculate the basis of the financial contribution required.
A site providing 14 dwellings will be subject to 25% affordable housing provision, therefore:
14 x 0.25 = 3.5
This means that 3 affordable housing units are to be provided on site, with an additional 0.5 unit equivalent financial contribution. This calculation means that the affordable housing proportion (%) has already been factored-in, so that the calculation now relies on deciding what type of unit the resulting fraction (in this case 0.5 unit) applies to.
Step 2: Calculate the sq. m floorspace applicable to the financial contribution calculation (dependent on unit type that would have been allocated for affordable housing).
Assume for illustration that the unit type is a 2-bed house at 83 sq. m.therefore:
83 sq. m x 0.5 = 41.5 sq. m
This represents the affordable housing shortfall to which the remainder of the calculation is applied.
Step 3: Assess which value level (VL) that your development falls into, using table 3 above.
The development is in Cherry Hinton. Table 3 states that properties in Cherry Hinton fall into Value Level 1 and 2. For wards which span one or more VL the council will apply the lowest VL for that ward, when calculating affordable housing. Therefore for the purpose of this calculation only, Cherry Hinton is classed as VL 1 (which is £2,500 sq m).
Step 4: Apply the VL to the relevant floorspace from step 2.
Apply the VL assessed at step 3 to (multiply it by) the Affordable Housing floorspace shortfall that was assessed at steps 1 and 2. This estimates the market value of that part unit for use within the calculation formula.
Therefore the market value to which the affordable housing financial contribution applies to is:
41.5 sq. m x £2,500/sq. m = £103,750 (market value of part unit).
Step 5: Apply the RLV % (30%) and then the 15% uplift to arrive at the top-up financial contribution to be made to balance the on-site shortfall.
£103,750 x 30% (RLV%) = £31,125
£31,125 plus 15% uplift (x 1.15) = £35,793.75
A2.14 The top- up financial contribution in respect of 0.5 x 2-bed house in this example is £35,793.75 and is to be provided in addition to the 3 affordable units provided on-site.
A2.15 It can be seen that the contribution worked through this way, and viewed in £/sq. m terms based on the relevant affordable housing shortfall floorspace, produces a multiple of 10 x the 10% equivalent contribution for VL 1 at Table 3 above. This is because the 10% (or other %) contribution step is not relevant in this case; the calculation instead uses the whole AH unit equivalent but applies only the relevant fraction of that unit as per steps 1 and 2 of the top-up financial contributions approach.
A2.16 Looked at this way, as an abbreviated approach in table 3, £/sq. m affordable housing contributions could be multiplied by 10 and then applied to (multiplied by) the relevant affordable housing floorspace shortfall (part unit fraction). However, for transparency the full calculation has been provided here.
