The value of housing design and layout (summary)

cabe the value of housing
design and layout
Research outcomes: 4
executive summary

the value of housing design and layout
Creating well designed new housing is imperative for ensuring sustainable and liveable
neighbourhoods. This report, commissioned by the Commission for Architecture and the
Built Environment (CABE) and ODPM in association with Design for Homes, investigates
whether differences in the design and layout of housing have an impact on a site's
commercial value for a developer. The research, undertaken by FPDSavills Research along
with Davis Langdon & Everest, demonstrates a way of measuring the economic dividends
of investing in high quality housing design and layout. It pilots a methodology that
developers, funders, planners and house builders can use for making like-for-like
comparisons of different sites.
The results show that design does appear to impact on the value of a
scheme to the developer and that it is possible for developers to add
value to their operations by adopting new and distinctive design practices.
A number of themes emerged which, whilst not necessarily statistically
significant, are of importance, especially as a basis for further research.
> The preconception that higher density decreases value per square
foot was not borne out
> There is a critical balance to be struck by the developer in maintaining
unit values whilst increasing density. In these situations, the increased
value achieved can be far in excess of the extra build cost incurred
> It illustrates that good design becomes more critical as densities are
increased over and above PPG3’s benchmark of 30 units per hectare
> Values will be maintained at these densities if design techniques are
sufficiently sophisticated to maintain their attractiveness to occupiers
> The potential impact on developer profits of enhancing the value of
the end product was far greater than the impact of reducing costs
> Density can be a potent economic lever for developers

THE CONTEXT
Projections for household formation indicate that England
needs an additional 3 million homes by 2016. Last year less
than 170,00 new homes were built throughout the UK, far
short of the 225,000 needed to keep up with demand.
To increase the number of new homes built, government
policy now explicitly requires building at higher densities
generally and developments to contain a broader mix of
property type and size. But creating real places rather than
cramped housing estates requires an investment in the quality
of housing design and layout. Currently consumer demand
outstrips new housing supply so there is little financial
incentive for house builders to invest in design quality.
For the first time, an analysis of costs and value has been
conducted on the basis of site area. It allows different sites in
different places, built to different standards and densities to
be compared with each other on a like-for-like basis.
THE FINDINGS
Most house builders analyse costs and value on the basis of
the square footage of the built product: only the value of built
units is taken into account and not the value added to the
site itself. This has a profound impact on the way that
property development and finance works.
The conventional method of measuring value fails fully to
recognise the contribution that master planning, design and
layout has on the efficient use of land and overall value of a
site. This value will impact profoundly on developers’
profitability. The report assesses and analyses overall site
values on the basis of the land covered, rather than the
square footage of units built. In this way, the factors that
make a difference to value are more easily identifiable.
> 1 The widespread market perception that good design costs
more was borne out by the study. All of the exemplar schemes
cost more to build per square foot of gross internal area than
the standard comparators.
> 2 The notion that higher density decreases value per square foot
was not supported by this study. In two of the four cases, the
value of the units in higher-density schemes was higher on a
per square foot basis than the comparable lower-density
schemes.
> 3 There appears to be no clear cut relationship between how big
a site is and whether innovative, PPG3-led design is more
profitable or not. However, the greatest added development
value was found on the largest scheme perhaps because a
large scheme has the greatest opportunity to really create its
own sense of place.
> 4 There is a critical balance to be struck by the developer in
maintaining unit values whilst increasing density. This is possibly
the single most important balance in determining the
commercial value of PPG3-compliant schemes for the
developer. This alone is reason enough to advocate design
practices that achieve increased value environments whilst at
the same time increasing density. In these situations, the
increased value achieved can be far in excess of the extra
build cost incurred.
> 5 This research begins to illuminate the question: ‘what
makes a desirable location?’ Whereas estate agents emphasise
‘location’ as the most important element of housing value,
leaving aside macroeconomics, there is a series of factors,
including the built form, that create a sense of place.
Some of the developments in this study have helped to show
how they fashion a strong identity for a new address, and
hence a new type of location on a piece of land, by employing
certain design principles. These new places can be more
desirable, and hence more valuable, than their erstwhile
neighbours. They also can be more desirable and valuable than
they would otherwise have been had standard development
house types and layouts been employed.
> 6 When it comes to value for a developer, as opposed to an
owner-occupier, it may be more appropriate to talk about
‘density’ than location as a critical determining factor. When
coupled with a high quality design treatment, ‘density’ can be
as positive a tool for developers as ‘location’.
Whereas before a developer might have aimed for densities of
between 25 and 30 per hectare (10 and 12 per acre), planning
and design aspirations have raised the target to over 30 to 40
per hectare (12 to 16 per acre) in suburban locations. In urban
situations, these densities could be very much higher.
> 7 The potential impact on developer profits of enhancing the
value of the end product was far greater than the potential
impact of reducing costs. Any R+D that increases development
values by 10% will have a greater beneficial impact on profits
than effort spent on reducing build costs by an equivalent figure.
Further study to increase the range and number of sites would
be useful to compound the report’s findings.
SIGNIFICANT ISSUES
> 1 There is a strong argument that values will only be
maintained at these densities if design techniques become
very much more sophisticated to maintain their attractiveness
to occupiers.
> 2 Good design becomes more and more critical as densities
are increased over and above PPG3’s benchmark of 30
units per hectare. Standard design and standard layouts will
not work on high-density developments. Increases in
density must accompany increased attention to design
quality: there are clear commercial rewards when this
course is followed.
> 3 It may be possible for developers to add value to land on
large sites by changing or inventing the nature of a place. If
design in its broadest sense can create, or help to create, a
desirable environment and one in which people want to live,
then developers have the power to increase the value not
only in their own interests but possibly those of surrounding
landowners too.

METHODOLOGY
The research selected eight examples of completed
developments and compared them in four matched pairs. The
eight sites were studied in four different locations around the
South East. This eliminated the impact of regional economies
and the differences between regional housing markets.
It was intended that schemes with ‘innovative’ design
elements would be compared against those of a more
‘standard’ design in the same location. Practical difficulties in
obtaining confidential commercial information from certain
developers necessitated creating two comparators based on
costed hypothetical schemes. These shared the same
locations as two of the schemes with innovative design
elements. The remaining two matched pairs both comprised
real schemes.
To make a like-for-like comparison, the methodology
eliminated externalities: firstly any remedial works peculiar to
a particular site (for example, contaminated land clean-up),
secondly, any major infrastructure works (for example, bypasses
and roads) and thirdly, section 106 agreements
(including community facilities and social housing). Finally, all
land covered by these uses, and land used as public space,
was discounted from the calculations so that the site area
was a standardised measure in all cases.
The developments were costed and a market valuation
made. A residual value was then calculated on each scheme
and expressed on a per hectare of land basis (using the
same overall measure of land for each example) so that all
sites could be compared to each other on a like-for-like
basis. The residual value does not represent land value,
rather it represents the commercial value to the developer of
the site.
CABE, the Commission for Architecture and the Built Environment, is the nation’s champion for better places, places which work better, feel
better, are better. We believe that decent homes, work places, shops, schools and hospitals are everyone’s basic right, a right worth
fighting for. CABE uses its skills and resources to campaign for a better quality of life for people and communities across England. We do
this through a rich mix of campaigning, researching, instigating and assisting with technical expertise and opinion.
Commission for Architecture
& the Built Environment
FURTHER INFORMATION
The full report, The value of housing design and layout,
is published by Thomas Telford Publishing
ISBN 0 7277 3208 0, price £25.
Thomas Telford Ltd
Units I/K, Paddock Wood Distribution Centre
Paddock Wood
Tonbridge, Kent, TN12 6UU
Tel 020 7665 2464
Fax 020 7665 2245
email orders@thomastelford.com
Copies of this report are also available on CABE’s website at
www.cabe.org.uk
The report, commissioned by CABE and ODPM in association with
Design for Homes, was produced by FPDSavills Research along
with Davis Langdon & Everest and Professor Alan Hooper of
Cardiff University.
The conclusions and recommendations presented here are those
of the researchers and not necessarily those of CABE and ODPM.
Office of the Deputy Prime Minister
www.odpm.gov.uk
FPDSavills Research
www.fpdsavills.com
Design for Homes
www.designforhomes.org
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