The Conservation Premium

With over 600 designated throughout Scotland and a staggering 9,800 in England, Conservation Areas afford protection to the crème de la crème of our built heritage and environment, for which there is seemingly no direct market. With the designation owners’ property rights are restricted. Changes to the external appearance of buildings and choice of materials limited and the cost of altering and maintaining buildings to a certain standard is in many if not most cases increased. The policy directly imposes a cost on individual owners and occupiers, but all in the name of a greater public good, which recent surveys suggest 92% of the population supports.

unsympathetic alterations causing the loss of traditional architectural features … loss of front gardens to parking … lack of co-ordinated or poor quality street furniture and paving …  traffic domination and cluttered pedestrian environment … loss of traditional shopfronts

[Problems which Conservation Areas are designed to overcome]

So how can it be justified? Can it be purely on the grounds of a positive external heritage effect? And what if the social benefits exceed the private costs of maintenance? Is there some intergenerational inequality, whereby residents today pay the costs for future generations to perhaps enjoy? Is there a case for additional support – for these areas will also have more listed buildings with additional development restrictions than non designated areas, in the way that farmers get subsidy to farm wildlife. Environmental subsidies are justified because markets fail to protect landscapes, wildlife and countryside, for as the rural saying goes, “you can’t eat the view.” Well the jury is out on market failure it seems and I see no sign of incentives for householders any time soon.

There is a counter argument that the designation eventually benefits the owners of buildings in Conservation Areas by:

  1. positive enhancements and measurable effects on quality and value of the built and natural environment; and
  2. removing uncertainty vis a vis future changes in the character of a location (removing caveat emptor).

And there are other less tangible benefits too, which may provide benefits – tangible and intangible:

  • a unique sense of place-based identity
  • greater community cohesion
  • a decision making environment which is positively skewed to protection and regeneration.

A recent study by the London School of Economics (LSE) aims to see if the market accounts for the designation, and also quantify some of the intangibles.

What LSE found was that houses in Conservation Areas in England sell for 23% above the average (£172k against an average transaction price of £139k), which by any stretch of the imagination is an attractive premium 1. Even when the researchers adjusted for location and type of property, the premium was 9% above the average.

The premium is highest in residential, suburban and areas with Article 4 status (where even more restrictions apply) but is likely to be lower in urban and mixed areas. But here is the rub, the sign goes negative, and below the average, if the Conservation Area is deemed to be “at risk” (-8.7%) or has received grants (-29.3%), namely the Townscape Heritage Negative (THI) which was funded through the National Heritage Lottery fund (there was a scheme not so long ago right here in Dunbar).

Commercial areas too are negative with total transaction values £8k less than the average of £139k. The picture in at risk and deprived areas is stark whether you use total transaction value (averaging £127k and £99k respectively) or the average per metre squared value (£1,372/m2 and £1,041/m2).

The research doesn’t answer the counterfactual, so one cannot conclude one way or the other whether deprived areas and those receiving funding would have done better or worse without the designation. Still it is not that hard to imagine that without the designation the discounts would be even more marked, though the researchers go out of their way to avoid implying this.

LSE did their study in England in 2012, but there is no reason to believe that things should be significantly different in Scotland and it would be useful and interesting for similar work to be done here, this was after all the first time a study of this depth and breadth has been conducted.

The research also showed that Conservation Areas have had stronger house price “appreciation” than other areas, albeit the effect was very small but statistically significant. There are lots of interesting findings embedded in the dense report, such as the fact that the closer your property is to the centre of the Conservation Areas the more it will sell for, strongly suggesting that people really value being surrounded by a greater density of heritage. The premium persists for properties outside the Conservation Area too, declining from the boundary outwards for almost a kilometre.

The finding that premia were higher the more distinctive and attractive residents perceived an area to be seems hardly surprising, but sometimes you have to restate the bleeding obvious. But how is it that when an area is in decline that public money alone seems unable to reverse it? Is it that the capex/opex is insufficient. Or is there a tipping point, beyond which private investors are unwilling to risk their own money?  If the local policies and commercial environment are unfavourable, or there is a high risk of bad neighbour developments, a few people will invest (because it is cheaper), but most will not, as they perceive the risk is too great.

But if you’ve heard from local shopkeepers that it is all plannings’ fault, they are wrong. LSE observed no overall universal negative attitude toward planning regulations in England (ok, they probably didn’t ask m/any shopkeepers and the Scots may be more cynical). But wait for it, those who had applied for permission were generally more positive than those who had not. So, clearly those that don’t know what they are talking about, well er … really don’t know what they are talking about.

What the research set out to uncover was whether there was evidence of market failure. If I interpret it correctly, the evidence suggests that the market has ‘capitalised’ the value in richer areas, but there may be distortions in the policy as it favours owners in residential and suburban areas, for whom paying a premium for attractiveness combined with stability is important. The policy on its own is unable to address adequately the deeper structural, social and economic factors at play which keep those properties in deprived or “at risk”areas depressed. The same applies to commercial areas, which are by implication less attractive and unstable for homeowners, owing to the vicissitudes of the nighttime economy, uncoordinated or rather incoherent policy application and weak enforcement by the local authority. That, and the absence of any specific policies that are favourable to residents (e.g. a small amount of resident parking can have a number of very +ve effects, signalling also that real people live there), lead to generally very low levels of private investment, except of the highly speculative sort, all of which conspires to depress or at best hold back asset values.

Trying to understand the structural issues that hold areas back is quite tricky, due to the interplay of social, cultural, political and economic factors. Locations may even have their own idiosyncrasies that defy generalisation. I believe that locally one such problem has been identified. But it ain’t as simple as your proverbial shopkeeper would have you believe – like the lack of shopper car parking.

What you can see is that deprivation in Conservation Areas keeps house prices lower. Commercial investment isn’t really the answer either, though inadequate commercial investment doesn’t help (cheapness begets cheapness). Crucially though, owner occupiers’ general reluctance to buy into High Street living is a bigger barrier to economic development. But why would you buy if there is uncertainty about the next take-away or convenience store – pound shop opening right next door. That and policy ambivalence towards residents and a rag bag of other problems like commercial and transport noise, waste and pollution, and other annoyances 24/7 make High Streets no go.

It is not just a failure to upkeep shopfronts and maintain the streetscene, or too many decrepit buildings (real investors see these as opportunities). There is a half century, and the rest, of local and central government policies which make High Streets undesirable places to live. Lax licencing laws, widening acceptance of ASB and increasing social ghettoisation, aided and abetted by pusillanimous councils who bow to that new rare breed – the shopkeeper, which must be protected at all costs.

Biased Portas-style reviews are not going to fix anything much for they pander too much to business, who we cannot trust anymore than we can trust local politicians to have community interests at heart. But neither are the motherhood and apple pie prescriptions coming from the likes of Malcolm Fraser (nice chap though he is) up to much, and even less by the time Government dilutes them into another anodyne action plan to gather dust on the shelf. We need to move beyond hollow exhortations and bland policy making by objectives and come up with something fresh, which provides certainty for serious private investment from owners and occupiers, which will in turn allow residents to reclaim their towns. Most towns that are Conservation Areas were after all were mixed developments.

In mainland Europe, people love to live in the heart of their towns and cities – I did and most of my close family did and still do, even though it was a bit of a jungle. To my mind it is Britain’s appetite for suburban dystopia, out of town shopping and its enduring marriage to the private motor car that needs questioning. But it is hard, if not impossible to get decision makers to take note.

  1. The transaction data include 1 million sales back to 1995, so don’t get excited/depressed by the absolute value – it is a bit meaningless

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passionate about the new and the old, but only if it is any good