Category: Sales

residual land value

ProVal LS update v20.03.02

ProVal LS update v20.03.02

SDS trainer Katherine Chapman talks you through some of the new features in the latest ProVal update, including the exciting new Appraisal Wizard for creating quick appraisals.

We have taken the opportunity to include two major new features in this version:

  • There are now shortcuts to create a new appraisal from a template and for recently opened appraisals, which are accessible from the ProVal Home Screen.
  • There is a new Appraisal Wizard for creating quick appraisals. To make best use of this Wizard your Unit Defaults should contain an entry for each type of unit you develop, e.g. 1-bed flat, 2-bed house, etc. and for each tenure that you build.

If you don’t yet have ProVal and would like to see more please call us or book a demo now.

If you are a customer and would like to do the latest update click here.

residual land value

How do you calculate residual land value?

How do you calculate residual land value, and how can it help housing associations win more land bids?

In economic terms, land is worth what someone will pay for it. As land is a limited resource, the person who can pay the most for a piece of land will win when competing against others. The process by which the land price is arrived at is a key difference between housing associations and private developers.

Private developers trade in land; housing associations are investors in property.  This fundamental difference means that they have different criteria for assessing land value, which sometimes favours the private developers, and sometimes the housing associations. 

Historically, the more agile nature of the private developer has usually been to their advantage as there is more freedom placed with the land buyer, plus, the assessment of the land value is typically more straightforward. Speed is not the only factor though. Vendors want to maximise the sale value, so the housing association sometimes has an advantage here, as the assessment method they use can lead to a higher land value than the private developer. Before we get into how such situations arise let’s take a look at the typical private developer valuation process.

Firstly, the private developer will research their market thoroughly and choose a mix of properties that have the highest value in the most marketable configuration, whilst considering planning constraints. They spend a lot of time on this part of the process. The outcome is the gross development value, or, the total sales receipts from selling those properties.

The next stage is to work out how much it will cost to build the properties. These costs can be broadly categorised into works costs, technical fees, abnormals, marketing, etc. Every cost is analysed to make sure nothing is spent that doesn’t need to be. In addition to the actual costs the developer will make an allowance for an acceptable profit margin, usually around 20%, but varying according to the risk.

gross margin

The residual land value is what’s leftover once you deduct the costs/profit margin from the gross development value.  For a private developer, the maths is easy: sales income less expenditure equals residual land value. Once the properties are sold then they move on to the next development.

For a housing association there is another key consideration – many of the properties will be rented and/or shared ownership. So, the future rental income (and possible staircasing) needs to be taken into account, as does grant from any funding bodies.

The way we value future incomes and costs is by using the concept of net present value (NPV).  This is the process of assessing the future value of the net rent as if you had received all the income on day one. A housing association can, therefore, convert 30+ years of future net rental income into a single value in today’s money.  The NPV of the net rent can be combined with grant income and initial sales tranche (if shared ownership) to produce a proxy gross development value (“GDV”):

Gross Development Value = NPV of Net Rent + Grant + Initial Sales Tranche

From this point onward the maths is the same as for the private developer; costs are subtracted from GDV to establish the residual land value:

Residual Land Value = Gross Development Value – Build Costs – Professional Fees – Interest

So how do the differing approaches make some sites more suited to private development and some to social development? The answer is that the sites with the greatest potential sales value will usually look better in the private model. It’s the sites that would command the lower house prices that will generally look better to the housing associations, because they can take into account the future rental stream, plus they may also receive grant for such sites. Luckily for the private developers, these future income streams are capped, so if there is sufficiently high value in outright sales, it will exceed the value of the future income.

The science on this is straightforward, the art is in determining the best possible mix of units for a site. Getting this mix right is the domain of the land buyer, not the architect, and is the key to maximising the residual land value, which will in turn give the housing association the best chance of a successful bid. 

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Phil Shelton

Phil Shelton

Phil Shelton is the Chief Executive at SDS. He has extensive experience in assisting housing providers to deliver their development programmes through software development, training, consultancy and reporting, at both strategic/board and operational levels. He has an MBA from Cranfield School of Management and is a member of the Institute of Directors and the Learning and Performance Institute. He is a volunteer consultant with the Cranfield Trust, which provides pro bono services to charities across the UK. He has been previously knighted, although sadly only in the Principality of Sealand (as a birthday present), rather than the UK!

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Data

Using data to future proof your homes

Using data to understand energy performance and future proof your homes

‘This Government is determined to leave our natural environment in a better condition than we found it. Clean growth is not an option, but a duty we owe to the next generation, and economic growth has to go hand-in-hand with greater protection for our forests and beaches, clean air and places of outstanding natural beauty.’

Theresa May, Prime Minister

Future Proof Your Home

This Strategy sets out a comprehensive set of policies and proposals that aim to accelerate the pace of “clean growth”. The Government’s approach is set regarding the context of the UK’s legal requirements under the Climate Change Act, the UK’s approach to reducing emissions has two guiding objectives:

  • To meet our domestic commitments at the lowest possible net cost to UK taxpayers, consumers and businesses
  • To maximise the social and economic benefits for the UK from this transition.

The Government’s key actions are set out in 8 policies and proposals with the aim to drive emissions down throughout the next decade, including improving our Homes, which represent 13% of UK emissions:

  • Improving the energy efficiency of our homes
  • Rolling out low carbon heating

The Government’s aim is to improve the energy efficiency of our homes, with £3.6 billion of investment to upgrade around a million homes through the Energy Company Obligation (ECO) to 2028, to achieve the following:

  • All fuel poor homes to be upgraded to Energy Performance Certificate (EPC) Band C by 2030, with the aspiration for as many homes as possible to be EPC Band C by 2035
  • Offer a smart meter to all homes to help them save energy by the end of 2020 

Not only will this strategy support the improvement of the energy efficiency and future sustainability of the UK’s housing stock, but it will also improve the lives of fuel poor households and the human cost of fuel poverty, including health and education.

The Department for Business, Energy & Industrial Strategy (BEIS) analysis of the English Housing Survey data forecasts that upgrading energy efficiency from an EPC Band E to C reduces energy costs by £650 per year on average. Given residents’ concerns about the cost of heating their homes, demand to replace electric storage heating along with ensuring their homes are well insulated, it is clear that keeping £650 a year in a resident’s pocket is a great result given the increasing cost of energy prices and impact of welfare reform.   

So, how can you use your data to understand energy performance and support the Government’s ‘Clean Growth Strategy’ now?

Using SDS StockProfiler and our active asset management methodology: to KNOW your stock, INVESTIGATE anomalies and ACT to deliver value to your organisation.

KNOW

  • Consolidate within StockProfiler existing internal Asset and Finance data about each unit to understand the existing worth of each unit.
  • Use current and potential Energy Performance Certificate (EPC) information to add an additional dimension to the dataset and enable in-depth scenario modelling of future potential investment projects.
  • Where internal EPC data is not complete,  we can fill data gaps using the Department for Communities and Local Government (DCLG) EPC data to populate our asset management model.

INVESTIGATE

  • Model actual or archetype investment options, then assess the impact on the worth of this investment on your assets to the business.
  • Examine and report the investigated options to enable the business to take a planned and considered approach to the investment, planning and implementation.

ACT

  • Support the project management and delivery of the investment, along with updating the datasets to ensure the business KNOWledge is up-to-date and accurate.

Linking the analysis of energy performance to wider economic performance such as net present values (NPV) and social intelligence such as resident satisfaction with the quality of their home enables you to make better decisions regarding future investment, obsolescence, disposal and growth across the wider portfolio of your assets. Overall driving the value of your assets whilst delivering sustainable green investment.

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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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Digital Marketplace

Digital Marketplace on the G-Cloud 11 framework agreement

Digital Market Place

SDS ProVal, Sequel and HomeMatch software is now also available via GOV.UK Digital Marketplace on the GCloud 11 framework agreement.

The GOV Digital marketplace is a government website that organisations can use to find cloud software and services.

Buying through this framework means you can save time and the associated costs of entry into individual procurement contracts. Many organisations can use the Digital Marketplace as an alternative to the tender process since there is a standardised set of information from each supplier provided on the portal. This information is what is typically requested in a tender for cloud-based software.

Digital Marketplace

One of the other benefits of using this service is that SDS will be able to work more closely with customers in the pre-sale process than would be possible using a traditional tender arrangement.

The G Cloud 11 framework is an agreement between the government and SDS where both agree to follow the terms of a formal procurement process as described in the Official Journal of the European Union (OJEU). 

Three SDS products are available on the GOV.UK Digital Marketplace: SDS ProVal to appraise the feasibility of schemes; SDS Sequel to project manage the delivery of those schemes; and SDS HomeMatch to manage the conveyancing of the homes in those schemes. This means our customers have a simpler route to procure our brilliant software to develop more affordable homes.

“We are pleased to offer our software on the Gov.UK Digital Marketplace to enable more customers to manage their risk while helping to solve the housing crisis.” CEO Phil Shelton.

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Laura Matthews

Laura Matthews

Laura is SDS Marketing Manager specialising in digital, social and content marketing. Her passion for helping people in all aspects of marketing flows through in the expert industry coverage she provides. Her work involves overseeing all aspects of SDS marketing including online, offline and events. Promoting; development appraisal, land valuation, development viability amongst many other areas.

Connect with Laura on LinkedIn www.linkedin.com/in/laura-matthews-sds/ or follow on Twitter @LauraSDS.

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Getting the right housing delivery team in place

Local Authorities: Getting the right housing delivery team in place

Housing delivery team

If you’re a Local Authority that has decided you want to start doing housing delivery for yourself, you’re going to need the right delivery team in place.  You may have existing staff with related skills, but if you haven’t directly delivered any housing for a few years, it’s highly likely that those in-house staff will struggle to get up to speed confidently and competently without a lot of support. Your current internal procedures and financial regulations will also probably need overhauling to suit the activity and give your team a clear fit-for-purpose structure within which to work.

Different Local Authorities decide to develop houses for various reasons.  For some it’s to increase the supply of all housing or only affordable housing, for others it’s to diversify housing stock, or it could be for income generation.  Your reasons will be tailored to your local circumstances, and you should get an approved strategy in place to articulate those. Your intentions and purpose will influence the most suitable methods for delivery.

One option would be to use the expertise of a partner organisation, which could be a nearby Local Authority that’s already delivering, or more likely a partner Registered Provider with a suitable track record to act as your Development Agent.  If you take this route, it’s recommended that you have an empowered and experienced member of staff on your team who can coordinate the client function. They would act as the interface with your Development Agent and administer a Development Agency Agreement that sets out the scope of the service, standards, fees, etc.  

The benefits of Development Agency are that you don’t need to retain an expensive team and the ongoing costs associated with it.  You get direct access to experienced staff with all the right tools already in place to support you in your aims. The downsides are that it’s harder to build internal capacity if that’s your longer-term aim.  It may also be difficult in some geographical areas to find a Registered Provider willing to allocate some of their resources to generating housing that won’t belong to them. If you have your land and can share the new housing generated with them in suitable numbers, then that may well prove sufficient incentive.

If you aim to have an in-house team and deliver directly in your own right, you should be comfortable that you’ll be creating sufficient numbers of new homes to make this worthwhile.  The costs, or an appropriate portion of the costs, of such staff, can be capitalised to the schemes they are delivering. This means that you don’t need to allow for a drain on revenue funding if your team are fully employed in delivery.  Of course, the new homes they create will generate revenue too. Setting your financial parameters and using an appropriate scheme financial appraisal tool will allow you to calculate economic impact over the development period and after the homes go into long-term management.

Appraisal tool

It may well make sense for you to share a specialist team between yourself and neighbouring partner authorities to share costs and create more favourable economies of scale.

Getting the right staff in place will quite likely be a challenge for all sorts of reasons.  Assuming you don’t have current experience in housing delivery, there’s no shame in accepting you won’t necessarily know what kind of people with what kind of skills you need.  

Perhaps you have a contract with an employment agency you could call upon.  Be aware though, that if you don’t know what you need, they will need to be a pretty specialist agency to correctly interpret your requirements and find you the right type of people.  Getting the recruitment right is crucial to your organisation’s success, so investing in some consultancy assistance here is highly advisable.

There are a limited number of people out there with the right skills, and the sector, in general, hasn’t been good over the years at training people in this specialism.  Having transferable skills is great, but this is a niche activity with added layers of specialist compliance. If you get things wrong, there can be some heavy prices to pay with the risk of reputational, financial and regulatory damage.  

You may also come across salary and benefit package issues.  Development staff are well remunerated for their skill set, and within a Registered Provider, these roles will usually come out pretty high up the salary rankings.  More often than not, they’ll also get a car allowance. You’ll need to find out what the current going rates are in your area and work out how you will be competitive as a potential employer.  Local authorities have a much better pension scheme on offer, so that’s worth emphasising. A good pension scheme is worth having. You might also offer flexible and home-based working opportunities, paid professional memberships, generous holiday allowances, training and CPD opportunities and so on.

Local authorities

Now let’s be frank … amongst many Registered Provider employees, Local Authorities seem to have a reputation as a less attractive place to work.  You may be up against this reputation, deserved or not! So, you would benefit from selling yourselves as the great, dynamic, groundbreaking, worthwhile organisations that you aspire to be!  

Many development staff went into the sector because giving something back to the community motivated them, and they enjoy being part of creating something tangible.  A lot of them have been through several major restructures and mergers, which can, of course, be very unsettling. They may have started their careers delivering bespoke schemes on a small scale, but now find themselves churning out large numbers of S.106 affordable housing requirement units where they have limited input and not much room for imagination.  Perhaps they started in the sector working for a fairly small housing association with a few hundred or a few thousand homes and now find themselves working in a very corporate environment with tens of thousands of units. Their work drivers are likely to be very different in that larger organisation, where ‘big finance’ has a major influence on development activity.

Contrast this with working for a Local Authority.  You’re going to be delivering homes within set geography, so the chance to know your area and the people you serve  … and potentially a lot less travelling! The proportion of S.106 affordable housing numbers in your portfolio may be a lot lower, and by contrast, your work could well be a lot more varied and creative.  The money you’re spending on new homes is less likely to be coming from bond finance, so the ‘big finance’ drivers that now prevail in Registered Providers fall away, which could mean a less bland workload.  You can deliver schemes purely because they’re what is needed in a locality, rather than because they’re needed to feed the machine. It might be easier to balance a programme of schemes with some money-spinners that cross-subsidise some less financially attractive proposals.  An attractive selling point as an employer could be all the reasons why Local Authorities are the new Housing Associations!

Housing delivery team

If you’re still struggling to recruit the right people, never be tempted to settle for the not-quite-right people, or the downright wrong people, just because they’re the only ones that applied.  Recruit for relevant experience, proven track record and attitude. If they don’t tick those three boxes, then they’re not going to get you where you want to be regarding delivery. It would be much better to get in interims and specialist consultants with experience at a strategic level until you can find the right people.  Those same interims or consultants will probably be able to help you find the right people. They should also be able to up-skill a handpicked selection of your in-house staff with transferable skills and an interest in your development aspirations.

Now a note on where to advertise roles.  Most development specialists are actively seeking a change of job are most likely to go to Inside Housing as their first port of call – on their website and in the weekly magazine.  LinkedIn and social media are also ideal places to post job adverts and ask people to share. Use any liaison or partnership meetings with Registered Providers and Local Enterprise Partnerships to let people know you’re recruiting. Wherever you advertise for staff, ensure the benefits of working with you and your organisation are clear.

If you’ve come across people that know what they’re talking about, informally invite them to apply, or ask them if they know of anybody who could be suitable.

When putting together an interview panel, you need at least one person involved who knows housing delivery inside out.  This is a specialist field, and it would be effortless to ask the wrong questions, not recognise the subtleties of a right answer, or be unable to uncover just how much experience someone has through probing.  You need to find out how your candidates are likely to fare working within a new team where some of the rules are not yet written. Depending on your development strategy, there could be a need for razor-sharp negotiating skills, the ability to broker flexible yet regulatory-compliant solutions, or a call for out of the ordinary due diligence.  Risk management will be critical, especially as development is capital-intensive.

Once you have one or two experienced people in place, you may want to consider growing your talent pool in this area.  New entrants to housing delivery in the social sector have been limited for some years, and there appears to be a decreasing number of people to choose from.  Running an in-house bespoke course is an option, or a mentoring programme using experienced professionals. This presents an excellent opportunity to grow an area of expertise that could be marketable to other authorities who aren’t as far ahead as you.

By the time you’ve got your team in place, you’ll want to retain them.  Regular reviews of progress in a lively culture which values continuous improvement make for an attractive place to work. As is getting new homes delivered at the same time as minimising the bureaucracy of decision making.

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Fiona Astin

Fiona Astin

With over 20 years experience in the affordable housing sector, Fiona brings extensive experience in the management and delivery of large programmes of residential housing at a strategic level. Following a career as Head of Business Development at Synergy HG and Regional Development Director at Aster Homes, she is now part of a cross sector network of Built Environment Exports offering support in delivering sustainable places where people want to live

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Appraising a Scheme

Shared Ownership in the Local Authority Sector

Selling Shared Ownership Today in the Local Authority Sector - Part 1

Shared Ownership

As the renaissance of development activity by local authorities continues to gather pace, shared ownership development is starting to come into the conversation. This really should be no surprise, because although assisted home ownership schemes have come and gone over the years, shared ownership has consistently been helping people get on the home ownership ladder. And while there were some co-ownership type schemes dating back to the late 1960s, it was a local authority that gave birth to shared ownership as we know it. Birmingham City Council’s 50:50 Scheme was launched in 1975 and is widely acknowledged in the sector as the forefather of contemporary shared ownership.

With more than 35 years passed since that groundbreaking initiative in the Midlands, shared ownership is as relevant today as it always has been and arguably more so in this age of austerity. While there will still be the debate about what is the greatest need and where resources should be targeted, whatever the tenure being looked at, the root of our housing crisis stems from the fact that we are not building enough houses. With shared ownership we get more bang for our buck- we can just create more homes with the resources available because the customer is funding part of it. In days gone by, shared ownership would not have found favour amongst some local authorities because they wanted to concentrate their resources on those in the most perceived need. However, the sector has matured over the years and now acknowledges that the desire for home ownership in Britain is so strong, we cannot ignore that desire. Rightly or wrongly, like warm beer and cricket, homeownership is part of our DNA.

Local authorities all over the country are starting to embrace shared ownership as they move into development. One example of this is Cherries Court, Bournemouth. Although Bournemouth Borough Council restarted their development activity a few years ago, Cherries Court, completed in December 2017 was its first shared ownership development.  There were over 150 enquiries for the eleven 2 and 3 bed family homes, and they were all reserved off plan 10 weeks before practical completion. Most purchasers were moving in only one working day after practical completion. Gary Josey, Director of Housing and Communities at Bournemouth Borough Council, is in no doubt which direction Bournemouth will be moving:

“At Bournemouth, we need more housing of ALL tenures. Not only does it address a pressing need, but housing development stimulates the economy and ferments regeneration. With the overwhelming success of Cherries Court, shared ownership is certainly going to play an important part in our development programme as we move forward.”

So rather than shunning a tenure that has undoubtedly helped thousands to home ownership since the Birmingham initiative in 1975, now is a good time for local authorities to embrace shared ownership and include it in their development programs.

In fact, local authorities have an advantage over traditional housing associations when it comes to ensuring their shared ownership developments benefit their local communities. By developing outside a Registered Programme, local authorities can mandate that purchasers have a local connection. This is in contrast to housing associations where, since a ministerial announcement in 2016, it has not been permitted to insist on such conditions if the homes are being built as part of a Registered Programme, (which with very few exceptions, is the case). We will look at this in more detail later in this article.

Sales and Marketing of shared ownership is very different to allocating homes for social or affordable rent, but it is an essential element of modern development within the social sector. In this article, we will be looking at the full story of selling shared ownership, to demystify it for new entrant local authorities, and to outline where SDS can help local authorities embrace it as part of their development programme.

Read the other articles in the series

Selling shared ownership today in the local authority sector – Part 1

Shared ownership culture – Part 2

Shared ownership, begin with the end in mind – Part 3

Shared ownership, time to get underway – Part 4

Shared ownership, the marketing plan – Part 5

Shared ownership, brand and branding – Part 6

Shared ownership, the ultimate sales strategy – Part 7

Shared ownership mortgages and conveyancing – Part 8

Shared ownership, it’s not over when it’s over – Part 9

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Greg Warner-Harris

Greg Warner-Harris

Greg Warner-Harris has worked in the low cost and assisted home ownership sector since 1997. Greg and his teams have been responsible for bringing over 2,000 New-Build Shared Ownership and other intermediate purchase products to market. Before creating Domus IMH, Greg was the Sales and Marketing Director for a major developing housing association and its commercial subsidiary which sold homes on the ‘open market’ to generate cross subsidy for the social parent. As Senior Partner for Domus IMH, Greg brings his experience & expertise to provide cost effective specialist services to the wider sector.

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