The Community Infrastructure Levy (CIL) is due to replace the infrastructure element of Section 106 over the coming 12 months and when the changes take effect, developers could have to pay significantly higher public contributions, according to a report from CBRE.
CIL is not fixed at a national rate, but is being set locally by each Local Authority. Student accommodation has attracted the highest draft CIL rates of all uses in many boroughs. In Islington, for example, CIL for student accommodation will be 33% higher than for residential development, potentially deterring developers from entering the market altogether, the firm points out.
The S106 system for infrastructure is being phased out in 2014. CBRE’s research has identified that CIL costs to developers are likely to be higher than Section 106 costs, particularly as there is no scope for negotiation on CIL liability.
CBRE is urging developers to make representations to Local Authorities on the quantum of the draft rates before the end of the consultation period in each borough. After this there will be no further opportunity to influence the rates.
‘The new CIL rates have the potential to restrict the pipeline of new student housing development, especially in London but also in key regional towns. Student accommodation is a national success story for property, as significant funds have been invested not just in London, but in towns and cities across the UK,’ explained Jo Winchester, head of student advisory at CBRE.
‘The proposed CIL rates could make land bids for student housing development uncompetitive against other uses. However, on the plus side for owners of existing stock, restricting the pipeline could have a positive impact on the rental growth prospects and values of existing stock, especially in key London boroughs, where the CIL rates are the highest,’ she said.
‘The UK has a worldwide reputation for first class higher education, and despite raised tuition fees, the number of students enrolling in universities remains high. The latest UCAS figures show a 2.7% increase in applications on 2012. Many towns still need student accommodation which is part of the infrastructure that supports education, but tighter constraints on development will lead to a continued shortfall. In turn this will lead to further pressures on the private rented sector,’ she added.
CBRE gives several examples of how costs will change. In Southwark, London, in 2012, planning consent was granted for 150 studios at Ewer Street. This consent was subject to S106 payments of £505,000 or £3,366 per bed for infrastructure. Under the new regime the CIL charge for this scheme would now be £1,612,000 or £10,746 per bed, plus Mayoral CIL of £35 per square meter and potentially Affordable Housing contributions of £615,000, subject to viability testing.
In Oxford consent to develop 141 studios on St Clement’s in 2012 attracted S106 contributions of £122,000 for infrastructure or £865 per bed. Based on Oxford’s proposed Charging Schedule the CIL would be £424,200 or £3,008 per bed. In addition to affordable housing contributions of £594,000, the same application today would potentially attract over £7,200 per bed in total contributions.
In Bristol an application for 442 beds on the Ice Rink site attracted a S106 contribution of £572,617 equating to £1,296 per bed space. A recent planning consent on the former Magistrates Court site in Bristol for 348 beds attracted a CIL of £1,041,700, of which £1,003,300 was on the student part or £2,883 per bed space.
