The term value when assessing the viability of developments

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

Here is a brief descriptions of different forms of value when assessing the viability of 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”.

[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 maybe 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.'

[edit] What is gross development value?

Gross development value (GDV) 'an assessment of the value of development. For residential development, this may be total sales and/or capitalised net rental income from developments. Grant and other external sources of funding should be considered. For commercial development broad assessment of value in line with industry practice may be necessary.' 15-20% of gross development value (GDV) may be considered a suitable return to developers in order to establish the viability of plan policies.

[edit] Benchmark land values

Golden Rules for Green Belt development

Where development takes place on land situated in, or released from, the Green Belt and is subject to the ‘Golden Rules’ set out in paragraph 156 of the National Planning Policy Framework, site specific viability assessment should not be undertaken or taken into account for the purpose of reducing developer contributions, including affordable housing. The government intends to review this Viability Guidance and will be considering whether there are circumstances in which site-specific viability assessment may be taken into account, for example, on large sites and Previously Developed Land.

[edit] Related articles on Designing Buildings

• Budget.
• Compulsory purchase order CPO.
• Compulsory purchase orders for listed buildings.
• Cost plans.
• Crichel Down rules.
• Demolition.
• Empty dwelling management orders.
• Empty housing in London - documentary.
• Land grabbing.
• Market.
• Market price.
• National compensation code.
• National planning policy framework.
• Nationally significant infrastructure projects.
• Neighbourhood Planning Bill 2016-17.
• Planning and Compensation Act 1991.
• Planning permission.
• Post-war rebuilding.
• Property blight.
• Reinstatement value.
• Safeguarded land.
• Town and Country Planning Act.
• Value