Update #12
‘Significant flaws’ in financial report
A quick update on one crucial element of the planning process.
After months of waiting, the developers finally released their Financial Viability Assessment - a report which estimates how much their scheme for St Christopher’s will cost - and how much profit they'll make.
And it's an interesting read.
SCAN believes there are significant flaws in this report and that the conclusion does not justify either the developer’s failure to provide affordable housing or unwillingness to reduce the size of the scheme.
The developers argue they're not making enough profit on the scheme to enable them to provide affordable housing. SCAN’s detailed analysis contradicts this. Our revised models suggest that it should be perfectly possible for the developer to not only provide affordable housing on the site, but also substantially reduce the number of flats and still make a commercially acceptable profit.
If you've got time, you can read the developer’s financial viability report here.
And you can read our full response here - it's all now on the Bristol City Council website.
But if you only have a moment - here’s a brief rundown on why we question their calculations and why it’s so important to understand the financial aspect of the proposals.
What are the developers claiming?
Stay with us because this is a bit complicated for those of us who aren't experts in development accounting….essentially, it all comes down to ‘financial viability’.
Establishing whether a scheme is viable or not, is important because if it can be shown that a scheme is ‘unviable’, the obligation to provide affordable housing could be removed.
According to their calculations, the developers claim the St Christopher’s scheme will be ‘financially unviable’. And this is why they say they can't provide affordable housing.
However - a theoretical lack of financial viability does not mean that they would make a loss. In fact, they have already built a healthy profit into their calculations, which is sufficient for them to continue with the scheme – but they claim any further requirements from Bristol City Council (such as affordable housing) would be unaffordable. This argument could also be used to justify the extraordinarily high density of development that they have proposed.
What SCAN think…
We think the developers have overestimated their costs and underestimated their revenue.
And we believe a few MINOR adjustments in some key areas would make a MAJOR difference to their profit margins.
Working out the correct profit margins is important because if final calculations show the project is both viable AND in profit, it’s harder for developers to argue against affordable housing provision or a reduction in units.
The three main flaws in their calculations:
1.Failure to include other future income from the scheme: Developers have not included long term income streams from the development - e.g. profit from care provision, community facilities, land rent, resale/exit fees and more - which could make them a lot of money over the next few years. This is income that, according to Government and Bristol City Council guidelines, SHOULD be included when calculating any profit and determining viability.
2.Overestimated development costs/Underestimated sales revenue: They’ve worked everything out assuming costs are at the high end of the scale and sales are at the low end. Even a minor shift in these costs/revenues by as little as 2% would make sufficient difference for the model to be financially viable. Don't forget there's been a rise in house prices since their calculations were prepared earlier this year.
3.Developers return: The developers have stated they want a profit of 20% of sales revenue, but, even by slightly adjusting that to 17.5%, the scheme would make a more than healthy return for its shareholders and would STILL be viable enough to honour the affordable housing obligation.
Small adjustments to any one of these aspects would show the model to be financially viable. Adjusting all three together would be likely to indicate a very substantial profit, millions of pounds greater than suggested in their model – or alternatively would allow them to reduce the number of units quite substantially while still making an acceptable profit.
To sum up:
Our calculations indicate that a scheme with far fewer new housing units could be completely viable. That viability would mean that developers are duty bound to provide affordable housing in line with Bristol City Council policy.
Instead, the developers appear to be presenting highly conservative calculations in an attempt to evade such obligations. The developers readily acknowledge the housing need in our city and claim this scheme will help solve Bristol's housing crisis, so it would seem incongruent that affordable housing is not an integral part of this scheme.
What happens next?
Bristol City Council planners and financial experts will now conduct an assessment of the developer’s Financial Viability Assessment and come up with their own conclusions.
Remember, as well as assessing the financial viability arguments, Bristol’s city planners are now in the process of reviewing over 600 objections to the scheme submitted by citizens earlier.
We will as ever keep you informed of the timescale of all their decisions.
Meanwhile, thanks for your continued support. And special thanks to an eagle-eyed and expert core team at SCAN and within the wider community, for all their research and efforts to write our comments on this report.