Land value modelling to inform Northern Powerhouse Rail case

APPRAISAL

A new model for forecasting the impact of transport investment on land and property values will inform the outline business case for Northern Powerhouse Rail, the project to speed up rail connections between the North of England’s biggest cities. 

The Northern Property Market Model is being developed by the Institute for Transport Studies at the University of Leeds in a project funded by Transport for the North (£112,000), ITSLeeds (£77,000), West Yorkshire Combined Authority (£50,000), and the Engineering and Physical Sciences Research Council’s impact acceleration account (£27,000).

A first phase scoping study for the project was completed last year, funded through the West Yorkshire Transport Innovation Fund, a collaborative research programme between the West Yorkshire Combined Authority and ITS Leeds.

Discussing phase two of the project, officers told WYCA’s transport committee this month: “The development of a Northern land value model has significant potential to shape and influence the Government’s approach to how wider economic benefits are quantified in transport case appraisal, with the development of the model used to support the outline business case for Northern Powerhouse Rail.”

Officers said the project would “set out clearly how quantified property market benefits could be used in the economic case elements of transport scheme appraisal, leading to a step change in the DfT’s WebTAG approach in this area”.

The research is being led John Nellthorp, a senior research fellow at ITS Leeds. He told LTT this week that the scope of the phase two project had been defined through engagement with bodies including the DfT; Transport for the North; the National Infrastructure Commission; the Ministry for Housing, Communities and Local Government; Transport for London; regional authorities in the North of England; and real estate specialists.   

“The aims of the phase two project are to produce quantitative evidence on the relationships between accessibility and land and property values in the North, which will be relevant to understanding the impacts of transport investment across the North (e.g. Northern Powerhouse Rail),” said Nellthorp.

The research will produce findings on:

• the role of land value in appraisal and business cases – economic, financial and strategic;

• distributional impacts – e.g. by spatial area / income / owners vs renters / age; and

• evidence to inform consideration of land value capture, and other policy implications.

It will also consider the time dimension of impacts, including time lags between infrastructure opening and land value changes. 

Nellthorp said the research would develop a large-scale econometric model using the latest datasets. 

“The model will be incorporating a large amount of spatially detailed data across many factors that influence land and property markets, so it is very strongly evidence-based, and it will provide insight into – that is it will ‘explain’ in a statistical sense – the relationships between accessibility by the various transport modes and land and property values across the study area. 

“That will help to understand how changes in accessibility feed into changes in land and property values.”

Nellthorp said he was “not aware of any models on the market” that currently did what the new model will do. The phase one report states: “From an academic perspective, there is not a regional model of this nature covering both accessibility and place quality, for policy/strategy purposes, that we are aware of in existence.”

The project will look at a wide range of explanatory variables for land/property values, including local schools and facilities; walkability; local environment; accessibility (multi-modal); and property characteristics.

Detailed rail accessibility modelling – including of travel time, fares and service quality – will be undertaken. 

Asked what projects the model would be relevant to, Nellthorp said: “In principle, anything that changes accessibility could lead to a change in land values. Different projects provide different amounts of new accessibility, so it should not be taken for granted that any substantial land value change will follow. The aim of the modelling work – in this context – is to estimate what that change in land value is.” 

The literature review in phase one uncovered extensive international evidence about land value uplift from rail, metro, tram and bus rapid transit stops, he said. “One key observation is that land value uplift varies widely from case-to-case. Our work aims to understand that better.”

The phase one report emphasises the importance of context, saying: “The Manchester and Sheffield tram systems both opened in a depressed property market initially (1992/4), and uplifts were low/insignificant. Conversely, Crossrail is opening in a market with excess housing demand and is showing large uplifts already in anticipation. It is important not to confuse uplifts due to the intervention with simple before/after comparisons, which may be affected by property market dynamics or other influences that we should be looking to control for.”

Some analysts, such as academic David Metz and consultant  Paul Buchanan, say that land and property value impacts of transport projects should replace transport user benefits such as time savings in transport appraisal. 

The phase one report by ITS rejects this point of view, however. “Land value uplift is not a substitute for transport user benefits in the appraisal of most rail or road projects,” it says. “The main reasons for this are: there are substantial doubts about whether the land market will fully capitalise all the transport benefits (or under/over-capitalise them); and there is therefore no certainty over what part of the land value uplift is ‘additional’ and what part is ‘double counting’ the transport benefits for a transport project.”

 The report says land and property value uplift does, however, have three potentially important roles in appraisal: 

• as a source of values for place-related effects, such as urban realm improvements, forming part of the social benefits, and hence the benefit:cost ratio (BCR) of a project

• as a way of identifying project funding through value capture, thereby reducing the cost of a project to Government 

• as a way of measuring the value of dependent development enabled by a transport investment

Nellthorp said the model would be “different from (and complementary to) LUTI [land-use transport interaction] models”. “The models in this study are designed specifically to get a deeper and more accurate understanding of the relationships between transport and the land and property market.”

WYCAofficers told councillors this month: “The phase two work potentially allows for future commercial receipts from the sale of the model to be shared across the funding organisations.”

Nellthorp said the motivation for the research was not commercial. “The work is intended to provide regional/national authorities and private sector partners with a basis for estimating land value uplift and the funding implications for projects or strategies in the wider North of England. 

“The method is intended to be at the forefront internationally – hence the university’s research involvement.”