Land value uplift recognised

I have for some time taken issue with the way the UK Department for Transport (DfT) plays down the economic benefits of land and property development that result when new transport investment makes land more accessible. While DfT recognises that housing developments may be dependent on provision of new transport services, the associated economic benefit is not included in the estimation of the benefit:cost ratio that determines the value for money of the transport investment.

The Department for Communities and Local Government (DCLG) recently published its Appraisal Guide.  This states (para 3.9):

‘….changes in land values as a result of a change in land-use for a development reflect the economic efficiency benefits of converting land into a more productive use. Land value data should be the primary means of assessing the benefits of a development. Land value data is a rich source of information because it is actual market data on individuals’/firms’ willingness to pay for a piece of land. Assuming individuals and firms are rational in their decision-making, market prices should reveal the ‘true’ private benefit of a development. This information can be used to undertake cost benefit analysis to quantify the potential welfare implications of a development.’
So there is a marked difference in the way two government departments treat land value uplift in economic appraisal, which is pretty odd. My view is that DCLG has the right idea. DfT is wedded to a theoretical framework that focuses on benefits to users of the transport system, and assumes that land use is unchanged. But this flies in the face of extensive evidence that transport investment that makes land more accessible can trigger development – London’s Docklands is a prime example of rail investment making land accessible for development. DfT should adopt an evidence-based approach, using evidence of outcomes from completed investments to inform the case for prospective investments.