By Rupert Hutchings
Why is Land Value Uplift useful?
There is no perfect way to capture, in economic terms, improvements to the general quality and feel of a local area for existing residents.
However, increases in residential property prices can provide a useful indicator of how people “feel” – the so-called welfare benefit from living in an improved area.
Property price rises form the basis for calculating “Land Value Uplift” (LVU) – an economic metric that captures perceived improvements in the quality of a location (the change in land value being net of the development value and costs of the building occupying the site).
The economic rationale is clear – if people perceive the quality of a location has improved, they are willing to pay more to live there.
LVU is included within DLUHC guidance as a suitable method for quantifying external benefits (i.e. benefits to a wider area surrounding a regeneration site), and it is frequently used to support business cases and bids for regeneration projects funded by programmes such as the Levelling Up Fund and Towns Fund.
However, a challenge has been the quality and breadth of evidence around historical LVU figures. This means business cases often need to apply conservative assumptions and limit the amount of reliance placed on LVU compared to other more easily evidenced benefits.
Clear correlation between housing-led regeneration and wider property values
In this context, the latest Homes England report, “Paper 1 – measuring the placemaking impacts of housing-led regeneration”, provides a welcome boost to the LVU evidence base.
Focusing on housing-led regeneration schemes, the Homes England paper shows how impactful new housing can be on local land value. It considers various factors including scale of the proposed development, historical levels of development and the region where the development will take place.
The study has identified and measured increases in housing stock capital values for existing properties located either 1.5km or 2.5km (dependent on size of development) away from the new housing development.
Results are shown in the table opposite. The analysis is based on data from 2009-18, taken from developments across the UK delivering a total of 8,901 new homes. Scenarios which will deliver more uplift to the location, are represented by darker shades of green.
The findings show that development locations which have seen lower levels of housing development in the past four years benefit the most from regeneration, irrespective of geographic region or scale of development. Across all the regions, developments in the range of 250-500 units, provide the most value uplift.
These findings are likely to play an important role in informing national housing policy. Homes England’s insights help to identify regions with the highest social return on investment (ROI) for housing schemes. For instance, construction of 400 homes in northeast England would yield a more substantial increase in local housing values compared to a similar investment in London.
Other evidence sources need to be included
It is important to consider a range of different sources and perspectives in any LVU assessment.
Location-specific aspects play a central role, and various studies show that a range of different factors can affect local property prices.
Such factors include:
- Transport access – numerous studies have established linkages between increased property prices and public transport connectivity improvements.
- Local amenity provision – as an example, a previous study by Lloyds Bank demonstrated a correlation between supermarket proximity and house prices.
- Access to green space, parks etc. – evident in studies of property prices in cities and towns in both the UK and internationally.
- Levels of crime and anti-social behaviour – which has been shown to have a direct negative correlation to house prices in the associated postcode.
If you want to learn more about Land Value Uplift, and how it strengthens the case for regeneration, infrastructure and transport investment projects, please get in touch.