Development viability indicators for UK regions - construction and evaluation of new time-series estimates

Understanding development viability is an important issue for property market participants and urban policy makers. In the UK, an extensive debate has arisen surrounding how much developers should contribute towards local infrastructure and the role that viability should play in setting such amounts. This debate is hampered by a lack of good quality empirical data on either land values or development viability in different areas. We attempt to address this problem by applying a residual method for calculating site value in different areas using data on values and construction costs stretching from the mid-1980s through to 2010. Each estimate represents the price that would be paid to commence development of a particular commercial property type at that time. Sometimes, the figures are negative, indicating that development is not viable at that point. Hence, they do not necessarily equal land value, as land values can reflect the option to develop a site more profitably in the future. Nonetheless, they capture the viability of development at different times and so are capable of informing policy makers in regard to stimulating or taxing private sector development activity. The estimates are undertaken for major towns and cities and then averaged across the locations within each region. The resulting regional measure is then compared to data on economic activity and construction output in order to evaluate the robustness of the figures and understand the relationship between potential viability and subsequent development activity in different areas.