eres2010_130_Henneberry_MODELLING_THE_RELATI(10)

The paper describes the development and application of physical-financialmodelling techniques to the analysis of relations between development design –covering the broad characteristics of a scheme, such as land use mix, developmentdensity and built form – and financial viability. It is divided into two parts

There is a substantial literature on the development process that considers it from various methodological and theoretical standpoints (see, for example, the reviews of Healey, 1991; Gore and Nicholson, 1991; Ball, 1998; Guy and Henneberry, 2002). The developer is "the key coordinator and catalyst for development" (Healey, 1991, page 224). Yet, despite their important influence on development, developers have received limited attention. Other actors, such as investors (Coakley, 1994; Pryke and Lee, 1995) or landowners (Goodchild and Munton, 1985; Adams et al, 1994), have been the subjects of special study. In contrast, in a survey of the field, Parris (2010) could only identify two UK studies (by Guy at al, 2002 and Ball, 2002) and two overseas studies (by Coiacetto, 2006 and Charney, 2007) that have explored developers’ character and actions in any detail.

Otherwise, the way that developers behave must be imputed from normative texts on property development (for a recent review, see Crosby et al, 2008). Such texts are set within the mainstream economics paradigm. They assume that developers aim to take utility-maximising decisions that are as informed and rational as possible. Utility is invariably expressed in terms of financial return, relative to risk. Consequently, development decisions turn on financial appraisals and the latter technique and its application is at the centre of all texts. In these circumstances, it is not surprising that one of the main arguments made by policy-makers and other protagonists seeking to promote better design is that "good urban design adds value by increasing the economic viability of development" (Carmona et al, 2001, page 8). However, this position is easier to maintain at the general than at the specific level. What matters is whether the quality of a scheme’s design will enhance its financial viability to the developer, not whether it will make the wider balance of economic costs and benefits more positive. It is from this more precisely defined perspective that the evidence for a link between design quality and development viability must be assessed.

This evidence falls into two broad levels and types. Taking aggregate, quantitative analyses first. Hedonic analyses of the determinants of property prices are legion. Many include measures of urban design quality and their price effects. For example, Eppli and Tu (1999) demonstrate that, for the US, New Urbanist design principles increase the price of single family houses by 10-15%; Vandell and Lane (1989) found that offices rated highly for design achieved rents 22% higher than those of poor design quality; views of and/or proximity to parks and stretches of water increase house prices by 6-11% (Luttik, 2000); hotel rooms that offer attractive views generate considerably higher income (Lange and Schaeffer, 2001); and good landscaping aesthetics have a strong, positive effect on office rents (Laverne and Winson-Geideman, 2003).

Such studies are frequently cited in support of the case for higher standards of design (cf. CABE publications). However, as Savills (2003) point out, hedonic analyses are based predominantly on existing rather than newly developed properties. In addition, their main strength - the substantial, general evidence base - is also, with regard to their applicability to the development context, a significant weakness. The variables in hedonic analyses are applied consistently across many varied cases. They must therefore be clearly defined and describe basic, measurable characteristics. Consequently, the results of hedonic analyses are simply not refined enough to be