The term value when assessing the viability of developments

1 Compulsory purchase process and compensation reforms
2 What is hope value ?
3 What is market value?
4 What is existing use value?
5 What is existing use value 'plus' (EUV+)?
6 What is alternative use value?
7 What is gross development value?
8 Golden Rules and a review of government Viability Guidance
9 Related articles on Designing Buildings
10 External Links

[edit] Compulsory purchase process and compensation reforms

In December 2024 the Labour government opened a consultation on proposed changes to compulsory purchase order (CPO) rules, including the removal of “hope value” to support affordable housing delivery. Hope value, reflecting the potential future development value of land, often increases compensation costs for landowners.

Section 1 of the consultation sets out the proposed reforms to the Levelling-up and Regeneration Act (LURA) power allowing directions to be sought to remove hope value from the assessment of compensation. Section 2 outlines proposals to make technical changes to improve the general CPO process and the rules for the assessment of compensation.

The consultation closes in February 2025, for further information and to make a response visit the government website Open consultation: Compulsory Purchase Process and Compensation Reforms.

The Labour manifesto published prior to the General Election committed to reforming compulsory purchase compensation rules to improve land assembly, speed up site delivery and deliver housing, infrastructure, amenity, and transport benefits in the public interest. It promised to take steps to ensure that for specific types of development schemes, landowners are awarded fair compensation rather than what it referred to as 'inflated prices based on the prospect of planning permission.'

In power the Labour government’s ‘Plan for Change’ reiterated its commitment to deliver 1.5 million new homes during its Parliament to address the housing crisis along with the vital infrastructure needed to grow the economy and support public services. It described the reasoning the proposed changes to CPOs as being to "ensure the process for compulsorily acquiring land with a direction to remove the payment of hope value for schemes in the public interest is more efficient. Also, that the balance of the assessment of compensation awarded to landowners is fair and quicker decisions on CPOs can be made allowing schemes in the public interest to progress. In addition, the administrative costs of undertaking the CPO process can be reduced."

In 2023 the Levelling-up and Regeneration Act introduced reforms to the compulsory purchase order (“CPO”) process to make it easier to use. It also made changes to the compensation regime to ensure the balance of compensation and costs associated with the prospects of planning permission for appropriate alternative development was correct and more akin to normal market conditions. LURA also introduced a power to allow for the removal of value associated with the prospect of planning permission (i.e. “hope value”) from the assessment of compensation in certain circumstances. The power allowed acquiring authorities such as local authorities (including Mayoral combined authorities), Homes England, NHS Bodies, development corporations, to include in CPOs directions to remove the payment of hope value from compensation providing it was in the public interest.

Specific government guidance on CPOs for different sectors:

Below are some brief explanations of different terms relating to value, which maybe referred to when assessing the viability of different developments.

[edit] What is hope value ?

Hope value is the term used to describe the market value of land based on the expectation of getting planning permission for development on it. This differs from the existing use value which is what the land or property is worth in its current form.

Generally, land that has planning permission for development has a higher value than land that does not. For example, a farmer may receive a valuation of their land that reflects its agricultural value. However, if the farmer were to secure planning permission to build a housing development on the land, the value could rise considerably.

Hope value is the value based on the expectation that land will get permission for development in the future, meaning that it is likely to be worth more. The hope value will rise as the prospect of planning permission becomes more likely, for example, if it is identified for development in the Local Plan, or if similar land is granted permission.

Hope value is defined by RICS as “...any element of open Market Value of a property in excess of the current use value, reflecting the prospect of some more valuable future use or development”.

For further information see Compulsory purchase compensation: Power to remove hope value

[edit] What is market value?

Market value is defined as the underlying economic value of items such as goods and services or land (as opposed to other measures of value; moral, socio-economic, environmental values etc). The HMRC internal manual Capital Gains Manual defines market value as 'The price which those assets might reasonably be expected to fetch on a sale in the open market.' This may be similar or different from market price which refers to the actual price something sells for, under an efficient market where rational expectations prevail these will be equal.

[edit] What is existing use value?

Guidance on Viability sets out key principles in understanding viability in plan making and decision taking defines existing use value as Value of a site or property in its existing use or based upon an implementable planning consent excluding any hope value.

'Existing use value (EUV) is the first component of calculating benchmark land value. EUV is the value of the land in its existing use. Existing use value is not the price paid and should disregard hope value. Existing use values will vary depending on the type of site and development types. EUV can be established in collaboration between plan makers, developers and landowners by assessing the value of the specific site or type of site using published sources of information such as agricultural or industrial land values, or if appropriate capitalised rental levels at an appropriate yield (excluding any hope value for development).

Sources of data can include (but are not limited to): land registry records of transactions; real estate licensed software packages; real estate market reports; real estate research; estate agent websites; property auction results; valuation office agency data; public sector estate/property teams’ locally held evidence.

[edit] What is existing use value 'plus' (EUV+)?

The premium (or the ‘plus’ in EUV+) is the second component of benchmark land value. It is the amount above existing use value (EUV) that goes to the landowner. The premium should provide a reasonable incentive for a land owner to bring forward land for development while allowing a sufficient contribution to fully comply with policy requirements.

Plan makers should establish a reasonable premium to the landowner for the purpose of assessing the viability of their plan. This will be an iterative process informed by professional judgement and must be based upon the best available evidence informed by cross sector collaboration. Market evidence can include benchmark land values from other viability assessments.

[edit] What is alternative use value?

Alternative use value (AUV) 'the value of land for uses other than its existing use. AUV of the land may be informative in establishing benchmark land value. If applying alternative uses when establishing benchmark land value these should be limited to those uses which would fully comply with up to date development plan policies, including any policy requirements for contributions towards affordable housing at the relevant levels set out in the plan. Where it is assumed that an existing use will be refurbished or redeveloped this will be considered as an AUV when establishing BLV.'