HOW MUCH IS LAND WORTH WITH PLANNING PERMISSION?
Understanding how planning permission can affect the value of development land
Obtaining planning permission can significantly change the value of land, but there is no standard amount that land becomes worth once planning permission is granted.
The value depends on what has been permitted, what the completed development could be worth and how much it will cost to build and deliver.
A piece of land with permission for one house will therefore be valued very differently from land with permission for ten homes, apartments or a larger mixed-use development.
More importantly, the value of land with planning permission is not simply calculated by multiplying the number of homes by a standard figure.
Developers generally work backwards from the value of the completed development, taking account of the costs and risks involved in delivering it.
DOES PLANNING PERMISSION INCREASE THE VALUE OF LAND?
It often can.
Before planning permission is obtained, there may be considerable uncertainty about whether development will be permitted and what form it could take.
That uncertainty represents risk.
Planning permission can reduce that risk by establishing an acceptable use, scale and form of development.
This can make the land more attractive to developers, builders and other purchasers and may result in a significant difference between its existing-use value and development value.
However, planning permission itself does not guarantee that a site will be highly valuable.
The permission needs to support a development that is commercially viable to deliver.
HOW IS DEVELOPMENT LAND VALUED?
One common way of considering development land is through a residual land value.
In simple terms, the calculation starts with the anticipated value of the completed development and deducts the costs associated with delivering it.
Those costs can include:
Construction
Professional fees
Planning obligations
Infrastructure
Finance
Marketing and sales
Taxes and acquisition costs
Abnormal site costs
Developer's return
What remains provides an indication of the amount potentially available for the land.
In simplified terms:
Value of completed development
minus
costs of delivering the development
minus
developer's required return
equals
residual land value
In practice, development appraisals can be considerably more detailed, but the principle helps explain why two sites with the same planning permission can have very different land values.
WHAT IS GROSS DEVELOPMENT VALUE?
Gross Development Value, often referred to as GDV, is the estimated value of a development once it has been completed.
For a residential development, this might be based on the expected sale value of each completed home.
For example, if a development contained five houses expected to sell for £500,000 each, the simple headline GDV would be:
5 × £500,000 = £2.5 million
That does not mean the land is worth £2.5 million.
The costs of constructing, financing and delivering those five houses still need to be deducted, together with the return required by the developer taking the project forward.
The resulting land value can therefore be only a proportion of the completed development value.
WHAT AFFECTS THE VALUE OF LAND WITH PLANNING PERMISSION?
Several factors can have a significant impact.
The number of homes
More homes can increase the potential development value, but only where they create an efficient and commercially attractive scheme.
The type and size of homes
A site containing larger detached houses may have a very different value from one containing smaller houses or apartments.
Local property values
The expected selling price of the completed development is fundamental to the appraisal.
Construction costs
More complex buildings and sites can cost significantly more to develop.
Planning obligations
Affordable housing, infrastructure contributions and other planning requirements can affect viability and land value.
Site conditions
Demolition, contamination, difficult ground conditions, retaining structures or unusual foundations can increase development costs.
Access and infrastructure
A site requiring substantial roads, drainage or utility infrastructure may have a lower residual value than a straightforward serviced plot.
Development risk
Uncertainty around planning conditions, technical matters, market conditions or delivery can influence the return a purchaser requires and therefore what they are prepared to pay for the land.
IS LAND WITH MORE HOUSES ALWAYS WORTH MORE?
Not necessarily.
Increasing the number of homes can increase GDV, but it can also increase costs and planning obligations.
An additional dwelling might require a larger access road, more complex drainage, additional infrastructure or a different form of construction.
Increasing density can also create a less attractive planning proposition or produce homes that are less desirable in the local market.
This is why maximising the number of units and maximising land value are not necessarily the same thing.
The strongest development proposition is usually one that balances planning, design, market demand and delivery costs.
HOW MUCH IS A BUILDING PLOT WORTH?
There is no standard value for a residential building plot.
A plot's value can depend on:
Location
The size and type of house permitted
Local house prices
Construction costs
Site conditions
Access
Services
Planning conditions
Demand from builders or self-builders
A plot with permission for a desirable house in a high-value location may be worth considerably more than a physically larger plot elsewhere.
This is why comparisons based purely on the size of the land can be misleading.
IS LAND WORTH MORE WITH OUTLINE OR FULL PLANNING PERMISSION?
The level of planning certainty can affect how a purchaser views risk.
A detailed planning permission may provide greater certainty about exactly what can be constructed.
Other forms of permission may establish the principle of development while leaving some matters to be resolved later.
However, greater detail does not automatically mean greater value.
The important question is whether the planning position provides enough certainty for a purchaser to understand what can realistically be delivered and what further work or risk remains.
For some landowners, spending additional money obtaining a more detailed consent may be justified.
For others, establishing the principle of development may be sufficient before marketing the land.
CAN I WORK OUT THE VALUE OF MY LAND MYSELF?
You can make an initial assessment, but reliable development valuation normally requires more than looking at nearby land sales.
The value of development land is closely connected to the particular development that can be achieved.
A sensible starting point is therefore to establish:
What could be built?
↓
What could the completed development be worth?
↓
What would it cost to deliver?
↓
What risks and planning obligations exist?
↓
What does that leave for the land?
Comparable land transactions can then provide an additional sense check.
For an important transaction, a suitably experienced development or land valuer can provide formal valuation advice.
SHOULD I GET A VALUATION BEFORE SELLING MY LAND?
If the land has credible development potential, it can be sensible to obtain specialist advice before agreeing a sale.
This becomes particularly important if a developer or promoter has approached you directly.
An offer may appear attractive compared with the land's existing value but still represent only part of the potential value that could be created through development.
Before committing to a transaction, it can therefore be useful to understand both:
the planning potential of the land
and
the likely commercial implications of that development.
A planning assessment and a formal valuation serve different purposes, and significant land transactions may justify both.
CAN PLANNING PERMISSION MAKE LAND LESS VALUABLE THAN EXPECTED?
Potentially.
A planning permission can establish development potential but still contain requirements that make the scheme expensive or difficult to deliver.
Examples might include substantial infrastructure works, restrictive planning conditions or other obligations associated with the development.
A consent for a scheme that does not respond well to the local market can also be less commercially attractive than anticipated.
This is why planning strategy should consider deliverability as well as simply obtaining permission.
A permission has greatest value where it creates a development proposition that somebody actually wants and is able to deliver.
SHOULD I GET PLANNING PERMISSION TO INCREASE MY LAND VALUE?
Sometimes.
If there is a credible development opportunity, obtaining planning permission can be one of the most significant ways of creating additional value in land.
But pursuing planning permission involves cost, time and risk.
It therefore makes sense to understand the likely opportunity before committing substantial expenditure.
An initial planning and development assessment can help establish:
Whether development appears realistic
What form of development may be appropriate
Potential development capacity
Principal constraints
The likely planning route
Whether further planning expenditure appears proportionate
This can then inform whether to pursue planning permission, sell the land in its existing condition or explore another structure with a developer or promoter.
SWAP VIEW
We would not normally look at land value independently from the development proposal.
The value is a consequence of what can realistically be built and delivered.
That means the strongest planning scheme is not necessarily the biggest scheme, and the biggest scheme is not necessarily the most valuable.
For landowners, the objective should be to identify a development proposition that combines a credible planning strategy with a commercially sensible outcome.
Understanding that relationship early can help avoid spending money pursuing a permission that does not create the value originally expected.
WANT TO UNDERSTAND THE POTENTIAL VALUE OF YOUR LAND?
If you own land and believe planning permission could increase its value, SWAP can help establish the planning and development opportunity before you decide how to proceed.
We can assess what development may realistically be achievable, identify the principal constraints and advise on an appropriate planning strategy.
Where formal land valuation is required, this should be undertaken by an appropriately qualified valuer, but establishing the development proposition is an important first step.
Send us the site address or location, a plan if you have one, and a brief description of what you're considering.