Spotlight: The Value of Placemaking

The Value of Placemaking
 
A common goal benefits all

13 October 2016, by Lucy Greenwood

A longer term view and willingness to draw receipts over a period of time is key to creating value for all

 

Our theoretical model shows what can be gained from the land in the long term. It does not include an upfront payment for land. If all the land is an upfront cost to the developer, development risk is greater and there may be less scope to make additional investment. However, where land is paid for over a period of time, there may be more financial capacity to invest in place and achieve better returns in the long term.

There is therefore an incentive for the landowner to take a longer term view and maintain ownership of the land to benefit from the additional investment. This can be achieved by entering into a joint venture (JV) or development licence with a master developer.

Separate research shows there is appetite among rural landowners to develop. According to our poll in our Estate Benchmarking survey of 81 rural estates, 40% have plans to sell land to developers over the coming year.

Importance of sales rates

Land value is increased with faster sales rates because higher levels of income are achieved sooner and the development is completed faster. As a result, the period until the development breaks even is shortened and the finance costs are reduced.

This benefits the various partners that may have invested in the scheme, including the public sector. Hence public bodies putting in the land, receive their back ended returns sooner and finance invested to support upfront costs of infrastructure can be repaid earlier, returning to the public purse.

Required rate of return

One of the most influential factors on land value in our model is the required rate of return on capital or discount rate. Patient capital delivers higher land values which justifies the higher investment in place.

This illustrates why developers with access to patient long term capital and /or public sector support are able to invest more in placemaking while those delivering a site on their own may find it more difficult.

A partnership approach is needed where both private and public sector work together to deliver a common goal of creating better places and building more homes.

Public sector support can come in the form of land, forward funding and planning certainty. Such a framework set up by a master developer allows a wider mix of housebuilders to participate increasing rates of delivery.

All three main cases studies we have observed at Alconbury Weald, Heyford Park and Poundbury, have involvement by a number of players.

Hopkins, Morris and Redrow are delivering homes at Alconbury Weald. Meanwhile at Upper Heyford, Bovis Homes have bought a number of plots, providing early funds to the Dorchester Group to reinvest in infrastructure.

 

 
Alconbury Weald

▲ Alconbury Weald

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Key Contacts

Susan Emmett

Susan Emmett

Director
Residential Research

Savills Margaret Street

+44 (0) 203 107 5460

 

Lucy Greenwood

Lucy Greenwood

Associate
Residential Research and Consultancy

Savills Margaret Street

+44 (0) 20 7016 3882