Planning: value of a place
11 April 2018
A new study analyses big data from 6 English cities to show how the value of a place is influenced by a wider range of factors than economists and planners tend to realise. Nicholas Boys Smith, Alessandro Venerandi and Kieran Toms summarise their work
Beyond Location is a study into what we mean by the economics or value of a place. In contrast to most conventional economic models or urbanists’ assumptions, it is beauty, a sense of locational memory and the urban quality of a place that sometimes matter as much or more than connectivity, space and proximity to work.
Our analysis of 160,000 property sales for 6 English cities shows that some elements of the urban environment, above all the presence of greenery, are not as consistently positive as they are normally assumed to be. Improving our empirical understanding of place value will help designers and developers, policymakers and the public to support the creation of better places, in which more people are able to lead healthier and happier lives.
But extra value, if understood purely economically, is not always a good thing. Spiralling house prices can force out existing communities. The aims of this study are therefore to help build better places, and to encourage developers and planners to understand and measure how cities need a range of uses, forms and scales to function and maintain their value for those who live and work in them.
The economics of place has been sidelined by many economists who have instead devoted attention to accessibility, while urbanist studies have focused on greenery and walkability.
In the past 30 years, though, there has been a revolution in the way academics analyse the factors affecting property values, technically known as hedonic modelling. This has permitted a more sophisticated understanding, and has been further improved by the emergence of big data and access to neighbourhood-level statistics.
However, not enough research is properly influencing design, policy or planning decision-making, which remain too often non-empirical in approach. Until recently, many planning systems evolved with no account being taken of price information or other economic indicators. Too many designers and planners still deny the importance of value as a way of understanding the town or city. Of course, extra value is not always a good thing, and value is not the only prism for understanding preferences. But it is a very important one.
Some economists have used recent research to develop ever more complicated models for understanding city economics. Such labyrinthine models have been little better than their predecessors, however. We don’t think that place value across multiple cities and years can be modelled in advance. Instead, we set out a new framework for understanding the value of place and the factors that create it. This framework shows how to fit thinking about place value into the wider context of education levels, economic growth, regulation, supply and the demand for space that necessarily affect regional value.
We have called this framework Beyond Location because it shows how place value is a function not just of supply and demand and access to income-creating jobs but also the inherent qualities of a place. Our framework has 2 components (see Figure 1).
Figure 1: Framework for Beyond Location
The first of these, the place value circle, sets out the different ways in which place value can be understood:
- the market price today
- investor value or free cash flow
- the gross value that a location adds either to the economy or a local or national government
- social value, that is a location’s propensity to encourage high wellbeing, strong community and high levels of interconnectedness, on which all towns and cities ultimately flourish.
The second component, the place value pyramid, sets out the factors you need to understand if you are to appreciate the value of a building. These are:
- the rule of law, stability, property rights and economic and other freedoms at the national level
- education levels as the best predictor of long-term income at a city level
- accessible income levels as the easiest way to understand demand
- the supply of new homes, the regulatory suppression of which accentuates all prices but particularly those of the more desirable properties
- local accessibility
- the quality, beauty, sense of place and scale of a home’s immediate surroundings and the popularity of its design
- the physical attributes of the home and its fit with local demand
- running costs.
The main focus of Beyond Location is on points 5 and 6.
Our wide-ranging literature review made 10 key findings as to which elements of place normally create value.
- Most people will pay more for a well-connected property away from too much noise, pollution and one way-streets, within walking distance of greenery and other local amenities.
- Shops with ready pedestrian access add value, as do good schools.
- In the right market, luxury towers can add value – sometimes considerably – within this framework. However, they can also be unpopular and reduce liveability. Their economics are not normally sustainable outside expensive developments with very high land values and rents or cross-subsidy.
- Popular, locally referenced vernacular architecture can add very significant value – more, for example, than views over water. Living in an environment they aesthetically like contributes to many people’s enjoyment of life.
- Flats or terraced houses on conventional blocks with clear fronts and backs in a legible street network with improved organised movement tend to be more popular and spatially efficient with better functioning private and public spaces. They are also less vulnerable to property crime, as entrances and windows facing the street provide natural surveillance and help to keep the area safe. Less crime, especially violent crime, increases prices.
- A conventional grid framework of streets, as opposed to a more 20th-century land pattern of distributor roads and cul-de-sacs, appears to add value. However, there remains a substantial market still for suburban living patterns.
- Older neighbourhoods are nearly always worth more in richer societies, particularly when their future preservation is guaranteed. They also go up in value at an above-average rate. The value premium of an historic neighbourhood is greater than that of a new-build and more sustained. Old buildings often attract more profitable businesses.
- When you compare new urbanist developments with traditional street patterns to lower-density suburban ones, they are nearly always worth more on per-unit and per-hectare bases.
- Wealthy purchasers are normally far better able than others to monetise their preference for the best neighbourhood features and urban form. This creates many policy and equity challenges.
- The same basic human needs, preferences and desires emerge reasonably consistently across different cities, cultures and dates.
A tale of 6 cities
We have conducted a unique analysis of market value, social value and urban form in 6 English cities – London, Birmingham, Manchester, Leeds, Liverpool and Newcastle – using the widest accessible data sets of basic urban characteristics. These relate to everything from street network connectivity to the presence of historic buildings, and from the amount of green space to overall accessibility. The models we used for urban form or morphology could predict up to 74% of the Index of Multiple Deprivation and up to 54% of sales values.
Our key findings, set out in Table 1, include the following.
- More greenery is not always a good thing. The immediate presence of attractive greenery, such as high-quality parks, can add huge value. However, at the city-wide level, more greenery can also be associated with lower value: what it is and how it is managed matters. For example, in London, a home closer than average to a high-quality park costs, on average, 10.6% or £51,000 more than one that is not, everything else being equal – an average premium of £29.83 per metre. However, in Liverpool, a home located closer than average to a high-quality park is worth, on average, 7.2 % or £7,760 less than one that is not, a decrease of £3.31 per metre.
- Land use and form does matter. Areas of high population with high levels of undeveloped land are less valuable, and are often associated with more deprived communities.
- The heritage premium is more important than the new-build premium. In every city, proximity to a listed building is associated with more additional value than the premium related to a newly built home. A home closer than average to a listed building in London is worth 10.3% or £49,770 more than one that is not, with everything else equal, which is equivalent to £141.83 of additional value per metre. The equivalent new-build premium is only £8,795. Beauty, a sense of place and the confidence that it will not be destroyed offer predictable value.
- Economists are right to focus on jobs: the economic context is crucial and London is different. The clear difference between London and our other cities shows how accessible income is driving an urban renaissance in the capital, out of all proportion to that visible elsewhere in the UK. Walkable, well-connected street-based networks or older properties have a value premium over other neighbourhoods that far exceeds those in other cities.
- The suburbs are not dead yet. The millennial generation may have different habits to their parents, but the merits of suburban life are still visible and valuable to many millions. These include amenities and services at walking distance, easy access to the wider transport network, medium densities, but also insulation from traffic and personal green space in a form that clearly benefits personal wellbeing.
- You can value diversity. Successful cities are defined by their diversity in form, use and transport, and this has value. Areas with greater diversity of house types suffer from less deprivation, while areas with greater transport and amenity value are normally worth more, all other things being equal. Diversity of transport options is associated with additional value in all cities studied, from £4,000 in Birmingham to £17,550 in London. Above-average amenity diversity is associated with greater value in 5 of the 6 cities, from £675 in London to £5,890 in Leeds.
- Gentrification is about place as well as location. In London, areas that are gentrifying are typified by the high proportion of homes built before 1900, a dense urban fabric, and their transport connections and centrality.
Table 1: Increases or decreases in value (£) of average property by variable in 6 studied cities
Developers need to understand value more widely and more generously. Their simple cash-flow models are probably predicting unit value rather than place value, and the intangible factors that don’t fit into it, such as diversity, sense of place, beauty, local heritage or a bicycle repair shop, may not actually diminish value in the way their models predict.
Investors should be wary, too, of paying a new-build premium. The value doesn’t always last. The premium associated with more old-fashioned patterns of urban settlement and more beautiful buildings is greater and longer-lasting, particularly in higher-income regions. Communities and residents in turn should trust their instincts. What makes a place feel like a home or a neighbourhood may add greater value for the clients for whom a developer is building homes or offices than they realise.
Planning authorities should be encouraged to enforce local rules with as much certainty and simplicity as possible. They should embrace an economic understanding of place and use it to appreciate what people want. Similarly, when making judgements on important issues that are hard to monetise, decisions should be based on as empirical an understanding as possible of the links between development wellbeing and popularity. Data rather than authorities’ own value judgements should be used.
In political terms, free market advocates should not dismiss perspectives on value beyond simple market price. Nor should they be afraid to talk about beauty or happiness in a place. These do link to value. More interventionist politicians, on the other hand, need to understand that the less well off also care about beauty and a sense of place. The more prosperous can simply pay more for it and don’t need to worry about basic affordability with anything like the same urgency. They should ask how to meet the need of the former group for more affordable homes without sacrificing the quality of where they live. Planning systems should be simple, predictable and rational.
Nicholas Boys Smith is Founding Director and Alessandro Venerandi and Kieran Toms are researchers and urban designers at Create Streets