When it comes to spending on placemaking, some key conditions stand out: the strength of the local market relative to connected markets and therefore the potential to increase sales values and sales rates through extra investment.

Our land value model

To examine how these variables affect each other and the impact of extra spending on land values, we built a simplified land value model for a theoretical urban extension of 3,000 homes on a 425 acres site, 50% of which is developable.

We have fixed many components of this model for simplicity and allowed the scale of additional investment, sales values and rates of sale to be varied. The effect of changing the required rate of return and the timing of the additional investment are subsequently examined here.

The land value is an output of the model, calculated as the net present value (NPV) of the cashflow of future receipts. It is the amount the land is worth today as the income in the future from selling plots of land or taking a share in the value generated from the homes sold.

At the simplest level, it shows that spending an extra 50% on placemaking, in markets where this leads to a higher sales value and faster sales rate, can boost the land value by around 25%, depending on required rates of return.

This is a theoretical exercise to illustrate the effect of investing more upfront. Real life throws up a bigger number of moving parts, with opportunities for partnerships to reach landowners’, developers’, local authorities’ and communities’ objectives.

The basic scenario

In this scenario, we assume a basic spend on infrastructure, average house prices and a steady rate of sales on a straightforward site with no remediation costs.

The required spend on enabling infrastructure, spine roads and services as well as S106 and Community Infrastructure Levy (CIL) obligations are made at a cost of £30,000 per home.

We have assumed a new home market sales values of £250 per sq. ft. or £250,000 per home which is a typical sales value in much of the south of England.

The Affordable housing component of the site is set at 30%, which is an approximate average target across such markets. The value of the Affordable housing is calculated as 50% of the market homes.

We assume that the homes on the site would be absorbed at a rate of 120 a year. This breaks down to 84 market sales and 36 Affordable homes absorbed per year. The modelling is illustrative. In reality, delivery may vary, increasing over the lifetime of the project to achieve local targets.

This market rate of sale is similar to the average on a range of large development sites in comparable markets. A hypothetical site developed according to these criteria results in a land value of £52 million – the equivalent of £123,000 per gross acre.

The legacy scenario

Here we have assumed that there is potential to increase demand for homes on the site which is reflected in higher sales values and sales rates. Amongst the examples we have looked at where placemaking has been successful, some sites have seen strong increases in sales rates, others have seen strong increases in sales values or elements of both.

In Poundbury, the urban extension to Dorchester in Dorset, new build values are up to 29% higher than on other new build schemes in the area on a type for type basis in the last year. At Brooklands in Milton Keynes the highest sales rates over the last three years have been nearly double (91% higher) that of other nearby developments such as Oakgrove and Middleton.

In this legacy scenario, we have assumed that sales values reach 20% above the basic scenario to £300 per sq ft and that the take up rate is 50% higher at 180 homes per year across all tenures, as a result of opening up new markets for the scheme.

The scale of additional investment put into sites for placemaking is difficult to quantify accurately. From our knowledge of the range of investment typically made on sites, we have assumed that spending an extra 50% of infrastructure costs on placemaking, with 60% spent upfront, could achieve the value and sales uplift required.

This brings the total ‘infrastructure’ spend to £45,000 per home. We calculate that the extra spend and sales value uplift would deliver land value of £65 million, 25% more than in the basic scenario. This is the equivalent of £153,000 per gross acre.

^{▲ Poundbury in Dorset | © Duchy of Cornwall}

LAND VALUE MODEL

The benefits of an increased spend

^{Source: Savills Research}

THE ASSUMPTIONS BEHIND THE MODEL: The variables we have chosen are based on Savills experience of sites across the country as well as interviews with clients. Site specific variables will of course vary from this illustrative case.

■ Our model is based on a hypothetical 3,000 home scheme on a site of 425 acres (172 hectares) which is 50% developable at a density of 35 dwellings per net developable hectare.

■ It assumes an average home size of 1,000 square feet.

■ 30% of the total number of homes are Affordable. The value of the Affordable homes are 50% of ‘The Basic’ market value of £250 per sq ft.

■ The basic infrastructure spend (£30K per unit) is the minimum required spend per unit for site preparation works, S106 and CIL. It is assumed that 40% of this is spent in the first two years, then 15% at each fifth of the development built out.

■ The additional infrastructure spend (an extra £15K per unit) is assumed to be spent as follows: 60% upfront investment then 10% every fifth of the development built out.

■ Uplift in sales values is linked to the timing and scale of additional spend.

■ A build cost of £100 per sq ft is assumed for the basic example, increasing with any additional spend on infrastructure by one third of the percentage of extra spend.

■ The build cost for ‘The Legacy’ scenario is £117 per sq ft.

■ The model is calculated in real terms, so no inflation is applies.

■ The housebuilder margin is 20%

■ The land value is calculated as the net present value of the net project cashflow.

■ No upfront land cost is assumed in the model.