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Camden councillors voted tonight to give the go ahead to both the proposal to build the school and to build the housing and employment space that will help fund it.

The debate lasted just over an hour and a half and got rather tetchy at times. It brought home how complex the funding issues are and how hard it is to make decision, or criticize them when no figures are made public.

The first vote was whether or not to approve the school and all the committee voted in favour
The second vote was whether or not to approve the rest of the scheme. Cllr Flick Rea (LD) and Cllr Claire-Louise Leyland (Con) voted against, it looked from the webcast as if Jenny Headlam-Wells (Lab) abstained (WHL has contacted Cllr Headlam-Wells to clarify), and everyone else voted in favour so both applications were passed.

We now get to see whether the numbers did indeed add up. There was some suggestion from the independent viability assessor that it was possible there would be more capital receipts from the scheme than originally anticipated. Should that happen, that money would go towards affordable housing, though this would not be on the Liddell Road site itself.

It was sad how little mention was made of the jobs and businesses that will have to leave the premises.

It’s decision time tonight for Liddell Road, but what’s at stake and why has it been so controversial?

What’s the deal?

The council has an obligation to provide enough school places for local children and the projections are that some 400 places are needed in the West Hampstead area in the very near future.

Where to build this school?

The council decided that Liddell Road, a light industrial estate that it owns just off Maygrove Road, was the best site. The school would take up about half the site.

Rather than build a new school, which under government rules would have to be a free school, it decided to expand Kingsgate School in Kilburn, which is the best part of a mile away on foot. The youngest children would attend the Liddell Road site, the older children would be taught at the Kingsgate site. Astonishingly, even now, the admissions point for the new expanded school has not been settled.

How to pay for it?

Like many councils, Camden has been hit very hard by budget cuts, so to pay for the school it’s decided to sell off the other half of the Liddell Road site for housing and office space. By selling this land to a developer, it would get enough money to build the school and have some left over to fund improvements to other schools in the borough.

Why has it been so controversial?

Jobs
The problems started more than a year ago when there was a big discrepancy between the number of jobs Camden stated would be lost from existing Liddell Road businesses and the number that the traders themselves came up with. The traders’ number was treble Camden’s number (250 vs 80), and Camden never published the results of its employment survey despite promising to do so.

Some traders also claimed that Camden was less than helpful in assisting them finding new premises, which was next to impossible anyway for those who wanted to stay local. Camden disputes this.

Consultation process
In the first consultation about the scheme, the number of respondents who were residents AND parents was incredibly low – in fact it appeared to be just two people. There were three high-level questions, and just two responses to each from this segment: one person was in favour of expanding Kingsgate, one didn’t know; one was in favour of the split school site, one was against; one was in favour of the redevelopment overall and one against. Had this consultation reached the right audience?

The tower block
In the run-up to the council elections in May 2014, Labour campaigned on more school places, which was popular, and won five of the six local seats from the Liberal Democrats. At this stage, the early plans for Liddell Road looked like this:

After the election, the plans looked like this:

Yep, a 14-storey tower block had appeared. Residents weren’t keen, and many pointed out that this site falls outside the designated Growth Area, where people have come to accept that higher density housing will be permitted (for example, West Hampstead Square, which has a 12-storey building at its heart).

Camden’s argument was that it needed all the housing to pay for the school, and all the office space to create jobs (more jobs than existed on the site before if you take their numbers, fewer if you take the traders’).

That £6.7 million grant
Camden received a grant from central government of £6.7 million specifically for new schools. First it wasn’t going to spend this at Liddell Road, then it was, then it was going to spend some of it. The detail has always been unclear. Camden has also said from the outset that it wanted to make an additional £3 million from the project to invest in schools elsewhere in the borough.

Many locals felt that money made from the site should be invested in West Hampstead. The council countered that West Hampstead schools have received a lot of money in recent years that has come from outside West Hampstead. That £3m has since come down to £1.9 million because the council underestimated the cost of clearing the land.

Affordable housing
Initially there was to be no affordable housing in the development. Camden would normally say that 50% of a large development should be affordable, though that’s rarely achieved in practice. Camden argued that the provision of a school completely offset the need for any affordable housing.

In its final revision of the plan, the tower block dropped to 11 storeys, and four of the 106 flats were to be affordable (initally, 1 social, 3 intermediate, but in the final report all four will be social housing). How the economics had changed to accommodate these changes was never made clear.

Opponents have argued that the surplus from the site could be used to increase the affordable housing, the council has said that it would add only a few extra units and it would rather spend the money elsewhere. Councillors also made much of the fact that the site at 156 West End Lane (Travis Perkins) would be developed with 50% affordable housing, but opponents have argued that is impossible to judge the merits of one scheme based on a promise that the council may not be able to keep on another that hasn’t even come close to a planning application yet.

Other issues
There have been a raft of other issues that have caused concern: the siting of the tower, the decision over access roads, the challenges facing parents with siblings at both sites, that admissions point problem, etc.. Camden has responded to all these, except the latter, though not of course always to the satisfaction of locals.

What are the alternatives?

Camden Labour councillors in favour of the scheme, which appears to be all of them except for Fortune Green’s Lorna Russell, have argued very forcefully that the school is essential and at a time of constrained budgets this is the best way of paying for it. They also point out that no-one who has opposed the scheme has come up with a viable costed alternative.

Proposing a costed alternative is difficult when Camden refuses to release any of the financial information associated with the scheme. Indeed it published a heavily redacted report in response to an FOI request. The NDF tried to work out the costs itself, and although it was forced to make a lot of assumptions, it calculated that the council could make an additional £10 million from the site.

Will it pass tonight?

Labour dominates the development control committee (the formal name for the planning committee), which will vote on the plans tonight. It is hard to imagine that the applications won’t be approved as this is one of the flagship schemes in Camden’s Community Investment Programme – its attempt to continue to deliver quality services in the face of swingeing budget cuts.

Complicating matters, the scheme is spread across two separate planning applications, for reasons that have never been clear given that one is entirely contingent on the other – i.e., Camden can’t realistically pass the school and reject the housing.

Many of the groups objecting to the scheme have tried to argue for a delay in order that the detail of the scheme can be discussed more thoroughly and perhaps improved. Very few are arguing that the whole idea should be thrown out wholesale, instead the questions are around the exact implementation. The council, however, is arguing that the school must get approval as soon as possible because it needs to open for the 2016/17 school year.

The upshot therefore is that to meet its statutory requirements on school places, the council has to press ahead with the school now and as the school will be paid for only by the flats and office space, they must be approved too. In other words, the planning committee is a hostage to time. This begs the question as to why this is all so last minute. To quote from a planning officer in one of the early consultation documents,

For a number of years families in the North West of the borough have struggled to find a local reception class place and Camden’s school place planning indicates that there will continue to be a pressing need in this area in the future.

Camden may point out that their predecessors did nothing to act on this when they were in power. It’s a fair point, but Labour has controlled the Town Hall since 2010. Perhaps if planners had had more time, a more equitable solution might have been found rather than forcing one through that has run into quite so many problems with locals who are not, by and large, against the underlying idea of the scheme.

 

The meeting starts tonight at 7pm. Liddell Road is the fourth planning application on the agenda so they should get to it. There are people going speaking against it and it’s likely to take some time to discuss. You can go to the Town Hall and watch in person, or you can watch the webcast here.

As West Hampstead Life reported a few weeks ago, Camden Council refused to disclose the finances related to the Liddell Road development [its scheme to develop the existing industrial estate, which it owns, in order to build a primary school there funded by the sale of housing and offices on the same site]. The council claims these numbers would let private developers know how the council values land, which would undermine it in future negotiations.

Leaving aside the fact that developers can employ armies of surveyors who are well versed in development economics to work such things out, the fact is that the inputs for development models such as rents, comparable sales prices, ‘allowable profit’ levels and building costs are widely available. The NDF therefore decided that in the absence of disclosure from Camden it was worth trying to do the sums itself. The results suggest that the council may make an additional £10 million from the development.

To help with its calculations, the NDF had advice from someone working in the property industry. Development economics are complicated and it is hard to imagine that all the councillors who sit on the planning committee – and thus who will vote on the scheme – have a perfect understanding of them. The general public certainly do not. To help the councillors, and as part of its legal obligations, the council does refer the scheme to an independent assessor. Members of the planning committee will see the assessor’s report before the committee meeting, though even here some financial figures are also redacted.

We would argue that in cases such as Liddell Road, where the council is both developer and approver as part of its Community Investment Programme, it is even more important that numbers are clear and transparent.

Lets do some maths

The actual calculations are relatively simple, and although we have had to make some assumptions, we feel that broadly we should be on the right lines. If Camden would like to correct us on any of these numbers, we would very much welcome their input.

Camden has explained that the sale of the flats and the office space will pay for the building of the school, and deliver a surplus. That surplus was originally £3 million but, in the final report to councillors, it’s been reduced to £1.9 million as the costs of clearing the land appear to be higher than anticipated.

To calculate how much money the council might make we need to work out

a) the value, to a developer, of the land with full planning permission for flats/offices
b) the costs of building the development + various other associated costs (including the developer’s profit margin)

This leaves a residual land value, which is the amount Camden can sell the land for to a developer and is what they will use to pay for the building of the school.

How much is Liddell Road worth to a developer?

The planning application is for two residential blocks and one office block. Lets take each in turn.

Housing
The application is for 106 flats (40 in a tower block and 66 in a mansion block) of which 4 are affordable. In total this is 10,247 sq m of floorspace and 319 habitable rooms. But what are they worth?

A good comparison is to look next door.

Adjacent to Liddell Road is 65 Maygrove Road (formerly Handrail House, now ‘The Residence’) which is currently being turned into 91 flats. These flats are already on the market with asking prices starting at £650,000 for one-bedroom flats and £780,000 for two-bedroom flats.

At those prices, the price per square metre is ~£7,500.

10,247 sq m x £7,500 = £76.9 million. To take account of the four affordable housing units, we’re rounding this down to £76 million.

Therefore, the estimated total sales value of the housing is £76 million

Office space
The application also seeks to build 3,727 sq m of office space. Based on comparable spaces in Queen’s Park and Camden we estimate an expected rental of £295/sq m.

The expected annual rental income from the office building would therefore be £1,097,000. According to commercial property estate agent Cushman & Wakefield, an office building like this could be sold for £20.5 million (based on a standard yield of 5.25%).

Total
Add together the £76 million for the housing and the £20.5 million for the office block and we get a gross development value of the site once developed of £96.5 million.

Deduct the costs

Now we need to look at the costs, which include construction costs, the developer’s profit and other costs.

Build costs
According to the BCIS (Build Cost Indexation Service) of the Royal Institute of Chartered Surveyors, an inner-London mid-height housing and office development costs about £2,750/sq m (including fees), though our research suggests this is on the high side for a development like Liddell Road.

Nevertheless, using this guide, the build cost of the 10,247 sq m of residential buildings is £28.2 million and the cost of building the 3,727 sq m of office space is £10.2 million.

To assess other building costs, we have drawn on data from bank BNP Paribas’ introduction to development economics seminar. Landscaping would cost about £1 million, infrastructure costs (roads, pipes) £5 million and a 15% contingency of £6.5 million would be normal.

Total construction costs = £50.9 million

The developer also has to make money and is allowed a 20% profit margin. For a scheme like this, we understand the margin is likely to be based on costs not sales, which gives us a figure of £10 million, but this varies from development to development and is subject to negotiation.

Two other costs can be deducted: financing and marketing costs. Interest rates are very low at the moment but at a rough estimate these would total £5 million. There are also marketing costs to sell the development (those swanky ads in the Evening Standard) generously estimated about at 5% of gross sales, so a further £5 million. Giving total ‘other’ costs of £20 million.

Total construction costs of £50.9 million + other costs of £20 million gives a grand cost total of £70.9 million.

What does this leave?

If gross sales = £96.5 million and total costs = £70.9 million, this leaves a gross residual land value of £25.6 million. This is what the council might expect a developer to pay for the land and what will fund the school

Normally, councils try to capture some of this uplift and get developers to include extra affordable housing and section 106 agreements for community facilities. The situation here is slightly more complicated, but in simple terms, the equivalent payments as set out in the planning report seem to total less than £200,000 (not all are costed, so precision is difficult), which is extremely low for a development of this size. As of April, when the new Community Infrastructure Levy comes into play, a private developer would be expected to pay £2.6 million on a housing/office development like this.

This £25.6 million (£25.4 if you want to strip out £200,000 for section 106-type payments) is supposed to finance the new school on Liddell Road and leave a £1.9 million pound surplus to be invested in schools elsewhere.

What does it cost to build a school?

Camden has said it will cost £13.4 million to build the school and has acknowledged that some of that will come from the £6.7 million central government grant the council received, though have not publically said how much.

According to the BCIS, the cost of building a new primary school of more than 2,000 sq m in inner London is £1,866/sq m. This is in line with the National School delivery cost benchmarking report of June 2014, which gives a figure of £2,170/sq m.

Going with the more expensive figure would give a cost for the school, which is 2,392 sq m, of £5.2 million. It is not clear therefore, how Camden has come up with a cost of £13.4 million – more than 2.5 times the national average.

Money left over?

Even if the school does cost £13.4 million and the council decides not to use any of the £6.7 million allocated for new school places here, our calculations suggest that there would be a further £12 million left over. Deduct the £1.9 million surplus that the council states it wants to make to fund other improvements to schools in the boroughs, and there’s still £10.1 million unaccounted for.

The property expert we spoke too clarified that his view “is given as a personal opinion on the market but is not an official valuation. That said if a full valuation was commissioned from a valuation surveyor, I am sure the view would not differ and in fact they might even come up with a higher site price’.”

The NDF would very much welcome Camden pointing out anywhere where our assumptions are wrong. Clearly the build costs and the sales costs have the biggest impact on the overall numbers, so it would be very interesting to know if Camden’s figures differ significantly from the benchmarks that we have used.

Camden council claims that it cannot reveal the costings and valuations behind its proposal for Liddell Road “in accordance with the legal advice we have received.”

This led to a farcical response to a Freedom of Information request made by former Conservative council candidate Andrew Parkinson. Andrew had asked to see the Liddell Road viability report, which many locals are keen to look at in order to understand how the council has come up with a scheme that involves an 11-storey tower block, a mere 4% affordable housing and a sizeable surplus.

Copyright issues on FOI responses are a bit confusing, so to be on the safe side, I’ve only published the appendices of the report. Appendix A is the Financial Appraisal and Appendix B is the Cost Plan.

All the numbers in the report – both in the body and the appendices have been redacted.

Andrew Parkinson said, “I personally don’t think its acceptable for the Council to entirely redact the figures in the report.”

James Earl, chairman of the Neighbourhood Development Forum, said:

“We welcome the publication of the Viability Report, which we believe should have been published with all the other documents relating to the planning application. However, the decision to redact every figure in the report is ridiculous and is an insult to the local community. This is not a private development – it is a scheme proposed by Camden Council which involves public land and public money. Local residents have a right to know about the financial position on which the proposed development is based.”

From the outset, Camden has been reluctant to show its workings. Promises to publish its survey on Liddell Road employment numbers evaporated over time, despite the council’s figures differing substantially from those cited by the businesses on the estate who were being forced to relocate.

Stephen Nathan, QC, chairman of local residents’ association WHGARA, said of the redacted report “This is absurd. Camden keep on forgetting that they are acting as a statutory planning authority.”

This latest move will do little to persuade sceptical locals that West Hampstead is getting the best deal here. A recent survey by the Neighbourhood Development Forum revealed that the broad concept for the land is popular, but the details – specifically the tall tower block and the lack of affordable housing – are far more contentious.

The West Hampstead Neighbourhood Development Forum has been running a survey since the start of November to gauge locals’ reactions to the council’s proposals for Liddell Road.

In total, there were 128 responses, and the full results will be published on Monday; however West Hampstead Life has been given an exclusive preview of some of the findings.

 

 

 

James Earl, chairman of the NDF, said “The NDF will submit the results of the survey to Camden Council as part of its response to the planning application”.