The value of housing design and layout

3.3 Dealing with externalities
METHODOLOGY
One reason put forward for the lack of comparable studies of value between good design
and standard design quality is the fact that it is difficult to separate the differences in value
that are due to design and those that are due to other factors. These other factors may
include, among other things, access to schools, access to transport, access to other
amenities, etc. Some research studies have attempted to account for these externalities
through sophisticated statistical techniques such as hedonic mix adjusting methods and
the validity of this methodology is addressed in the literature review section of this study.
For the purposes of this study, we originally proposed to identify matched pairs of
‘exemplar’ sites and ‘conventional’ sites with as near identical external characteristics as
possible. The impact of externalities would then be removed in two ways:
1 through eliminating as many of the differences between sites’ locations as possible
2 by measuring the impact of development on a homogenous product, namely land,
rather than trying to assess the difference in value between exogenous units
An initial attempt was made to eliminate site differences through the utilisation of
geographical information systems. However, it was found that there are simply not
enough new build schemes of sufficient size in comparable locations to yield comparators
on this basis.
A revised alternative method of excluding the impact of external influences on value was
required. Instead, conventional developments in the same area but sometimes in slightly
different types of location were chosen. By using a valuation approach to assess the
gross development value of all schemes, the influence of different external factors on each
scheme was then eliminated. This was done by asking experienced valuers, active in the
local market-place, to assess each scheme as if it were on the same site as each of the
exemplar schemes. In this way, like-for-like comparisons were obtained. The only variable
that differed between each matched pair was the design and layout.
During the course of the research, two of the developers of conventional, comparator
schemes decided to withdraw from the study. These schemes (at Chelmsford and
Aylesbury) were replaced by the creation of a hypothetical scheme in each area. These
hypothetical sites contained similar characteristics to the sites already selected (to provide
a grounding in reality). A cost model of these sites was then created by Davis Langdon &
Everest (DL&E) to emulate a typical, conventional local scheme.
The focus of this study on residual value per area of land, as opposed to unit value or
value per square foot of unit, provided a common basis of measurement for all the sites. It
was also a method by which they could all validly be compared. This negated the need to
make adjustments or account for variations in the charateristics of the units on which
value was measured. Instead, the residual value could be specified on a homogenous,
uniform product (land) which differed only by the location of each matched pair. Even this
broader, regional difference between the matched pairs could be eliminated by indexation
using an appropriate index of regional building land values, if required.
T H E V A L U E O F H O U S I N G D E S I G N A N D L A Y O U T
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