A rapid analytics tool to map the effect of rezoning on property values

Highlights

• Residual Land Valuation (RLV) is lacking in rezoning decision-making processes.

• An RLV was developed and embedded into the RAISE planning toolkit.

• RAISE-RLV assesses value uplift scenarios from rezoning rapidly and in detail.

• RAISE-RLV has been co-designed with end-users and tested on real scenarios.

• RAISE-RLV can inform more equitable and efficient value capture strategies.

Abstract

Cities are continually evolving through adjustments to zonings. The potential to integrate more equitable and effective value capture mechanisms into the rezoning process makes estimation of increases in land value from rezoning of interest to urban planners. The use of Residual Land Valuation (RLV), while accepted practice in development feasibility calculations, tends to be absent from the rezoning process because it is outside the skill set of most planners. Also, RLV has historically been applied to individual land parcels with limited potential for wider estimation of land value, and is generally not embedded in planning tools limiting the potential for value capture mechanisms to be included in the early scenario phases of rezoning decisions. This study addressed these issues. An RLV tool to estimate value uplift from rezoning was developed and embedded into a planning support system called Rapid Analytics Interactive Scenario Explorer (RAISE) to explore densification options associated with transport-oriented development. The co-design of the RLV tool with end-users and its test in a real case scenario in Greater Sydney has demonstrated the potential of RAISE-RLV. Specific advances included development of an algorithmic approach to RLV, that could be automated and applied across multiple parcels of land in rapid response to changing zoning. Second, such calculations were incorporated into a platform compatible with established rezoning decision making processes. The study demonstrated that it is possible to include RLV in a platform that improves users' understanding of the valuation process. The RAISE-RVL approach and tool can make a significant contribution to well-considered urbanisation. In addition, in the current era of tight government budgets, properly informed value capture mechanisms are a promising strategy for funding new infrastructure supporting both urban growth and the broader goals that growth can realise.

Introduction

Growing global populations, particularly in urban areas, are creating demand for additional, and more advanced, public infrastructure. Such infrastructure is essential for realisation of the implicit goals of global urbanisation: liveability, sustainability, resilience, and economic opportunity in a competitive global context. Importantly, in many jurisdictions this growth in demand for infrastructure is outpacing any growth in government budgets. As such, infrastructure funding and financing is an inherently contentious topic.

The provision of urban infrastructure is typically, and closely, associated with intensification of surrounding land, accommodated by permissive zonings or land-use regulations. Such zoning or regulatory changes generate a windfall for private landowners whose land values increase according to their development potential. Recognising the nexus between infrastructure and carrying capacity of urban land, and seeking to defray the flow of ‘unearned’ increments to local landowners, governments have commonly adopted land-use regulations and development fees. By capturing the uplift in private land value through fees (called ‘value capture mechanisms’), governments can, at least partially, fund the public infrastructure that causes that uplift.

However, robust methodologies to estimate the uplift of land and property values stemming from infrastructure development and zoning decisions are often lacking. This is, in part, because land values are not the primary driver of such zoning decisions, while those making zoning decisions are seldom experts in land valuation. Instead planning controls on density, building form and land use are driven by notions of environmental ‘carrying capacity’ and by local character objectives. To be useful in the zoning process, land values under different zoning scenarios need to be available rapidly and for whole regions. Ideally they should be in a format, and delivered through a platform, that makes them easy to incorporate into zoning decision-making. The absence of such tools means that the nexus between zoning decisions and value uplift is not exploited efficiently.

In contemporary urban data analytics, there is an opportunity to improve this dimension of zoning decisions, and even improve planners' understanding of land values, through a new generation of planning support systems that connect planning controls and land valuations. More and better information, innovative analytical methodologies, and robust and fast cloud computing can produce land valuation estimates more rapidly, more accurately and with greater contextual specificity. This will allow uplift to be better incorporated into existing planning processes that create, compare and assess zoning scenarios. This, in turn, allows for more informed decision-making and fairer application of value capture mechanisms.

The study presented here is part of an effort to address the existing gap. A residual land valuation (RLV) model to estimate value uplift from rezoning is embedded into a planning support system called RAISE – Rapid Analytics Integrated Scenario Explorer (Pettit et al., 2020). Section 2 backgrounds this research, discussing how cities progressively grow through rezoning and densification, and the effect of such rezoning on land values. Section 2 also outlines RLV methods, and how they can inform rezoning practices if estimated in a timely and interactive manner. Section 3 presents the development of the RLV tool, describing the assumptions, data inputs, calculations and outputs connecting zonings with RLV. Section 4 describes the testing component of the empirical research, illustrated through estimation of value uplift around proposed metro (train) stations and their associated rezoning precincts in Sydney, Australia. Section 5 evaluates the proposed RLV tool, with focus on its usability by actual end-users, its computational performance, the validity of the RLV estimates, and the generalisability of the tool to different geographical contexts. The final section summarises the achievements of this study and discusses its limitations and future work.