Jeremy's Blog 30th August 2024: Location and Value

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 29th August 2024

Location is often intrinsic to the value of property, typically distinguishing it from most assets. The introduction of planning control did not create development value but, by restricting the supply of land, it limited supply and concentrated value on favoured locations, increasingly so over the last generation. That shows that as society, the economy, public policy and other circumstances change, so does the value of location.

The policies of the new government, the pressure for net zero and climate change among other factors will test this further. Echoing its late 1940s origins, the planning system is now being used to deliver national purposes; Angela Raymer’s moral duty for councils to deliver these is reminiscent of the gentleman in Whitehall knowing best. Agriculture is a default and recognised land use but subordinate when society needs its land for a solar farm or new town, a tenant’s statutory security for agricultural use falling with that choice. Location matters.

We have sensed for some time that a site’s proximity to a grid connection may give it particular value, especially if this prompts competition between several renewable energy generation and storage uses. The developing policies to exclude fossil fuels completely from electricity generation, now by 2030, are making this much more evident. This was a key factor in both the Mallard Pass and Gate Burton large solar farm approvals as well as the called in application in the West Midlands green belt near Kenilworth.

While economics may mean that sites further from a connection need to be larger, existing large capacity connections anyway offer substantial scale. Often that may be by an old power station site with a network of transmission lines, leading to concentrations of solar farms. Perhaps to local annoyance, it is building on simple economic advantage.

It will be a matter of circumstance whether the profit in a solar farm use creates value for a landowner or whether the convergence of cables on a connection adds or reduces value to land being crossed. While there might be more opportunities than risks for owner occupiers (perhaps subject to changes in BPR), a tenant would typically have more compensation from a DCO for a solar farm or new town than under Case B.

The next twist comes from the variability of power from sun and wind. With greater scale, so there will be more times when they produce more power than can be used. That has already led to land being taken for batteries, flywheels, pumped water and other storage. Handling over-supply seems a feature of the system – in part to help manage periods of undersupply – and could be used to make hydrogen.

That logic now leads to old power stations and major former industrial sites with the water once cooling them now sought to cool new data centres as well as having the power to meet the formidable demands of AI and cloud computing. Microsoft is reported to be planning data centres for the former power stations at Eggborough and Skelton Grange in Yorkshire. That seems likely in turn to increase the demand for local power generation.

Then, we are building more grid connections. The new power lines with their sub-stations may offer the potential to become solar corridors, now also for turbines, just as river crossings, then railway stations, road junctions and recently the Elizabeth Line stations created value for property.

We can look more widely. The new and demanding target of 1.5m houses by 2029 is perhaps not so far above present building levels as to change the national market but the emergence of new towns and major urban extensions, with transport hubs a key factor, could well drive close consideration of value as locations move from speculation to proposal.

On the next horizon, the growing risk of flooding, annual flooding for many, may exert downward pressure for affected areas, perhaps should Flood Re’s 2039 expiry come to restrict housing finance, adding to housing pressure elsewhere.

The larger picture is of the essential restless nature of markets, changing with supply and demand with people’s hopes and fears, chances of profit and loss aversion with opportunities and innovation opening and closing. It is just that property has that extra factor of location.