The link between financial returns and creating buildings and places in which people and communities thrive
- Accounts from the practitioners who were interviewed for this report show there is strong evidence that property and development which creates societal value can produce higher levels of financial return compared to schemes that do not.
- A search through the literature and accounts from interviewees for this report shows that the information needed to prove that development rich in societal value is worth more on the open market is not being routinely collected and so, at present, this assertion is difficult to prove.
- The industry has identified a number of challenges that limits the ability to deliver societal value in many types of development schemes.
- A key technical barrier to establishing societal value is the erroneous belief that it is not possible to place a monetary value on social and environmental change in the built environment. Using methods of valuation based on the accounts of those who are directly affected by development, it is now possible to provide transparent and evidence-based societal values to compliment conventional financial valuations of property and development.
- Societal value needs to be discussed at the early stages of the development process, and between all parties that are going to be involved in the establishment of the development.
- Many local authorities face multiple barriers when seeking to increase the societal value of proposed development and address the needs of their communities. These include under-funded planning and regeneration teams, concern about risk in relation to public expenditure, perceived legislative constraints around the disposal of land and assets, and in the formulation of legal agreements.
Common features of developments that create significant societal value
The case studies featured in this report share the following aspects of development:
- A strong (often ambitious), clear, aligned and well communicated long-term vision between local authority, developer, investor, local community and local businesses.
- One (or more) stakeholders with the aspiration and drive to create a legacy asset.
- An investor who is prepared to accept a patient approach to achieving long-term, low-risk returns.
- A developer who is intimately acquainted with the needs and wishes of the local and adjacent communities, and who is committed to enhancing existing public assets to generate a sense of place in the short, medium and long term.
- A public sector partner who is able to take a flexible long-term interest and involvement in a development and has the skills, experience and resources to actively participate and steer a scheme toward inclusive goals.
The need for more and better techniques, metrics and ways to understand the societal value of development
- There is an opportunity for a change of culture among all those involved in the development process that favours an interest to maximise societal value in every proposed scheme.
- Existing (conventional) methods used to value real estate and property are effective, but tend to undervalue or overlook the impact development has on people.
- New economic thought such as the inclusive growth or good growth (as described in the Draft London Plan) suggests that investment in development should benefit the widest number of people which infers both financial and societal value.
- Measuring and reporting societal value in the built environment could be carried out as a parallel exercise to financial valuation. Separate guidance could be drafted to standardise some techniques and assist those who wish to adopt the new discipline.
- Short-termism presents barriers to the creation of societal value. For example, some private sector investors are unable to wait for social and environmental benefits to pay dividends, while the electoral cycle and the need to supplement falling central grants affects the decisions made by the public sector.
- For those organisations that are seeking assistance with societal value, there is a small but growing group of experts utilising an approach based on social return on investment that is capable of monetising societal value. The approach is based on stakeholder accounts and socio-economic statistical data.
- There is the potential for new financial mechanisms to overcome the gap between conventional development, and development that maximises societal value. Encouragement of impact investment and patient capital into property, and the ability of government to guarantee impact bonds are a few examples of how these mechanisms might take shape.