Why is Community Land Value Necessary?
Despite the planners’ best efforts to distribute community land equitably throughout the community, this is seldom achieved. This is because certain land uses must be placed in specific locations or are required at specific times.
The equitable distribution of community land uses throughout the secondary plan can be a significant and often unresolvable planning challenge.
Where planning ends, cost sharing begins.
A secondary plan with an unbalanced distribution of community use land is typically resolved through cost sharing.
Owners with a deficit in community use lands (surplus residential lots) compensate owners with a surplus of community land (deficit in residential lots). The compensation is equivalent to the net value of the residential lots that were displaced by the surplus community land. Stated in the reverse, the compensation is a transfer of lot revenue from the owner with more than their fair share of lots to the owners who has less than their fair share.
How to establish community land value?
The value of community land is the most contentious and fiercely debated topic in cost sharing groups. The land valuation process must be robust enough to withstand all owner questions, concerns and objections before being considered fair, equitable and reasonable.
What is “fair, equitable and reasonable”?
The community land should be set at a value that is financially neutral to all owners. In other words, the placement of community use lands on an owner’s property should not increase or diminish any owner’s financial position.
When the value is calculated correctly, then community-wide land use planning can occur comprehensively, without owner concern for negative financial impacts associated with community land placement.
An acre is an acre is an acre.
Community land compensation should be calculated such that the average financial return on developable land across the secondary plan is equalized. In other words, an average acre of community land (schools, parks, etc.) should enjoy the same financial return as an average acre of residential land.
Determining land value: Is it an art or a science?
Many consider community land value calculations to be a complex combination of planning, engineering, and intuition to arrive at a community land value. That is the artist’s perspective.
From an engineering perspective, community land compensation is a simple calculation derived from a few simple measurements.
The widespread use of hypothetical development scenarios to set land value can obscure the simplicity of the concept, introduce confusion, and negatively impact speed and precision.
What’s the alternative?
The actual secondary plan contains all the information required for an accurate community land valuation. It is the most authentic reflection of the community, with all its inherent irregularities and inefficiencies.
When done correctly, it should be fast, transparent, understandable, reproducible, and verifiable.
… and what if things aren’t done correctly?
Improper calculations can have serious financial implications for owners.
When a school block is subdivided as a hypothetical development to estimate revenue generation, how can you be sure that the outcome genuinely reflects the actual community characteristics? Any error in the frontage or local road characteristics will impact the compensation value.
For example, if a hypothetical plan is prepared using incorrect community characteristics, the compensation value could be out by as much as 30%. I’ve seen that happen in a large suburban community.
Are you truly aware of how your community land was valued? Understanding this is crucial to safeguarding your financial interests.
“We usually subdivide a school block”
Scale models were introduced more than half a century ago to address the computational limitations of the last century, which included:
- Time-consuming and difficult to manually measure land areas and frontage lengths on a paper plan
- Time-consuming to do extensive infrastructure design and tabulate quantities manually to support detailed cost estimates.
The goal of lotting out a school block was to create a scale model of the community to estimate development revenue, which significantly simplified and reduced the magnitude and complexity of the land value calculations.
Furthermore, when hypothetical school block models were introduced in the mid-1900s, lot product was extremely uniform. Lots generally had a standard depth and frontage. The uniformity of lots allowed a scale model to reflect the wider community with an acceptable level of precision.
Limitations of the School Block Approach
Like all scale models, effectiveness relies on proper calibration to accurately reflect the conditions they aim to replicate.
While the mid-1900s model approach was conceived and calibrated based on uniform residential lots throughout a community, that assumption is no longer applicable. A typical contemporary secondary plan includes conventional lots, wide/shallow lots, semi-detached lots, conventional townhouses, slab on grade townhouses, back-to-back units, lane units, medium density blocks, high density blocks, etc. Each product type has its own unique footprint and its own unique price point.
A contemporary plan must be calibrated to accurately reflect the multitude of residential products. Calibration of a land valuation model requires measurement of the entire community, the very problem the model was set up to avoid. Yet, if the model isn’t calibrated, the accuracy of the scale model is suspect.
The inherent risks associated with the scale model approach include:
- The yield in the school block model may not accurately reflect the community.
- Cannot verify if the underlying principles have been applied properly.
- The resulting land value cannot be verified.
- The model does not demonstrate whether land revenue has been equitably distributed
In summary, the school block technique lacks clarity and transparency, making it difficult to verify its effectiveness.
Why you should abandon scale models (lotting out a school).
The computational challenges of the last century have long since disappeared. There is simply no reason to tolerate imprecise and archaic scale models.
Today, it is much faster, easier, more accurate, and transparent to analyze the entire community comprehensively in order to establish a Community Land Compensation Value.
Community-Wide Analysis
While measuring the entire community may seem overwhelming, there are actually only a few key inputs to be measured:
- Total Saleable Frontage
- Total Length of Local Road Adjacent/Flanking Residential
- Net Developable Area
- Net Revenue Producing Area
These calculations are quick and can be efficiently completed using conventional drawing software.
Simplified Community Land Compensation Value
The development industry is fast-paced and dynamic. Owners can’t afford to get bogged down with lengthy land compensation calculations and negotiations.
DSEL has standardized and simplified the calculation of Community Land Value Compensation, making it fast, transparent and verifiable.
Introducing Easy Value
DSEL is excited to present Easy Value, a standalone component of DSEL’s Easy Share suite of cost sharing innovations.
Easy Value provides significant advancements in community land compensation, including:
- Standardized Methodology: Firmly grounded in sound engineering, cost sharing, and land use principles.
- Automated Measurement: Quickly calculates plan-based quantities such as saleable frontage, centreline road length, net developable area, and revenue-producing area.
- Simplified Calculations: Requires fewer inputs for ease of use.
- Unmatched Speed: Offers unparalleled processing speed.
- Visually Intuitive Figures: Enhances the transparency of calculations.
- Demonstrated Financial Equity: Shows that compensation values provide financial equity across the community.
DSEL is committed to modernizing cost sharing by providing fast, fair, transparent, reproducible and standardized community land value solutions.
Why You Want to See More
- Understand the principles behind community land valuation clearly and transparently.
- Discover how automation has slashed the time needed to prepare cost sharing schedules and calculate land compensation values.
- Get answers to lingering questions about cost sharing, fairness and equity.
- Uncover the elements of cost sharing that are often overlooked, misunderstood, and or shrouded in mystery.
You don’t rely on outdated methods in other key areas of your business. Don’t do it with cost sharing. You have a contemporary option.
Call us for a demonstration, and let us show you why DSEL should be your cost sharing engineer in your next community project.
Want to learn more?
Contact us to schedule a demonstration of DSEL’s Easy Share and Easy Value—industry leaders in cost sharing solutions.