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Anniversary special issue: Property and Construction
Edited by Gerard Wood and Peadar Davis
1 Introduction
Until relatively recently, the discipline of development appraisal has remained the provenance of surveyors and developers. It has largely been ignored by other participants in the development process, particularly planners, architects and construction specialists. This is now changing. Close attention is now paid to the viability (and profitability) of development proposals as the UK Government seeks to extract developer and/or landowner contributions to affordable housing, public services and infrastructure. Consequently, the theory, application and outputs from development appraisal are under intense scrutiny from a wide range of users. Since Circular 05/05 proposed the submission of "financial information" to provide a basis for negotiations between developers and local planning authorities about viable levels of affordable housing, tests of the financial viability of development projects have become an integral part of the planning process, both at the forward planning and development control stages. At the macro-level large-scale Strategic Housing Land Availability Assessments require proposed plans to be achievable. However, the time frame for development can be decades rather than years and, as a result, generating detailed and reliable cost and revenue projections can be impractical. At the other end of the scale, viability appraisals are carried out to inform negotiations about affordable housing levels for a scheme about which there may be a high level of information on permitted development and expected costs over a relatively short timeframe.
In terms of critical evaluation from the real estate academic community, development appraisal has remained something of a backwater. In contrast, often linked to market traumas, over the last four decades methods of appraising standing investment properties have been the subject of widespread academic and professional debate. Whilst the RICS monitors variance and accuracy of investment valuations, there is no comparative institutional evaluation of the performance of development appraisals. Nevertheless, conventional development viability models have been subject to some criticism, particularly their simplified composition, failure to mirror reality and theoretical weaknesses.
This paper investigates the extent to which these limitations and weaknesses of development viability models matter. We examine whether model choice and composition (in terms of complexity of information content) has a significant effect on model outputs. The paper attempts to address two...