Valuing our heritage

The concept of valuation is well established, and the Royal Institution of Chartered Surveyors
(RICS) provides rules and regulations which guide, inform and steer how valuations are
carried out for a large variety of purposes. The difference between ‘value’ and ‘worth’,
different methodologies and the definitions attached to assumptions are all set out in the
RICS Appraisal and Valuation Manual (Red Book). When valuing our heritage, however,
special and unique factors can often come into play, and how one measures non-financial
elements such as historical importance also needs to be considered. This short chapter raises
some of the principal issues and highlights areas for further research.

What is heritage ?

The perception of heritage varies from individual to individual. The government, in Planning
Policy Guidance Note 15 (PPG15), states from the outset:

“It is fundamental to the Government’s policies for environmental stewardship that there
should be effective protection of all aspects of our historic environment. The physical
survivals of our past are to be valued and protected for their own sake, as a central part of our
cultural heritage and our sense of national identity.”

Our historic environment contains a vast range of structures from stone circles, castles,
churches and cathedrals to classical Georgian town and country houses, through to industrial
properties such as mines, factories, gasholders and mills. In addition, there are historic
landscapes. In fact it is easy to come to the conclusion that everything has (or will have)
heritage value – if not now, then in the future. It is a myth that heritage automatically equals
beauty but, as we shall see later, beauty – or at least visual architectural or historic quality –
can have an important role in valuation.

Market value valuation methods

The investment method is where an income stream (or potential income stream) is capitalised
at a yield determined by the market. Careful analysis of comparable transactions is required
to judge the income flow projection that is, if there is likely to be a rent review in the future,
what is the open market rental and the correct yield? As the investment method applies
mainly to commercial properties such as offices, shops, factories and warehouses,
commercial reality steps in and the capital value can be accurately calculated, except where
an owner has a particular desire to occupy a specific property.
Another accepted valuation technique which applies to businesses, especially hotels, is the
going concern approach. Some historic hotels and large country houses converted to hotels
can generate a ‘heritage premium’, and a higher room rental can be achieved because of the
historical ambience and architectural style of the property.

There are also other valuation methods such as the depreciated replacement cost method, but
these are beyond the present scope.

Non-market value valuation methods

The contingent valuation method (CVM) directly questions consumers on their stated
willingness to pay for, say, an environmental improvement, or their willingness to accept
compensation for a fall in the quality of the environment. There are various applications and
formats that CVM can take but respondents might, for example, be questioned as to how
much they would be willing to pay to improve the setting of Stonehenge.

The hedonic pricing method (HPM) is similar to the traditional comparable method and was
developed by Rosen (1974). It aims to determine the relationship between the attributes of a
good and its price and is arguably the most theoretically rigorous of the valuation methods. A
large number of hedonic studies considering the effect of environmental and neighbourhood
variables on house prices have been undertaken in the past and there is a significant body of
research into the impact of architectural style and historic zone designation on property
valuation. The basis is that any differentiated product unit can be viewed as a bundle of
characteristics, each with its own implicit (or shadow) price. In the case of housing, for
example, the characteristics may be structural, such as number of bedrooms, size of plot or
presence or absence of a garage, and can range through to environmental matters such as air
quality, the presence of views, noise levels and even crime rate.

The travel cost method (TCM), developed by Clawson and Knetsch (1966), is a simpler
methodology than HPM in that it is based on the premise that the cost of travel to recreational
sites can be used as a measure of visitors’ willingness to pay.

Another system which helps to assess the ‘value’ placed on construction projects was
developed by Loughborough University. The system, called Managing Value Delivery in
Design (VALiD), is designed to help stakeholders understand one another during team
formation and provide a comprehensive view on value.

The heritage love factor

In certain situations, particularly in connection with listed residential properties, the end value
of a property may be exceeded by the cost of acquisition, repair and conversion cost, which
would imply that the purchaser in theory paid too much for the property. Why? The answer
may be an underestimation of costs or end value. However, some owners simply fall in love
with a property because of its location or, more often, the unique living space that they can
envisage, as well as in some cases the history of the property. Classic examples are redundant
windmills, Martello towers and water towers.
It will not here explore the concept of ‘public value’. Economists can understand value as
expressed by markets and values expressed in contingent valuation surveys, but have more
difficulty with public value that has no obvious cardinal, ordinal or descriptive scales.

Other uses for valuations

The market value of a property is used by local planning authorities and English Heritage
when considering applications for enabling development. Enabling development is
development which is contrary to the established planning policy and is proposed to secure
the future of historic assets. Here, an amended form of development appraisal is used to
determine the minimal amount of enabling development.

Both English Heritage and the Heritage Lottery Fund use market valuations when assessing
certain types of grant assistance, as do lending bodies when valuing heritage properties for
lending purposes.

Conclusion

There is no doubt that the historic environment has immense value to society as it plays a
pivotal role in our quality of life and the economic well-being of the country. Increasingly,
more sophisticated valuation techniques are being used to measure the non-financial benefits
of our heritage to enable government to make sometimes difficult decisions on how to
allocate funds for major regeneration projects that affect the historic environment. On a
smaller scale, individual heritage properties are usually valued by more conventional
methods. It is the duty of the professional valuer to carry out valuations in a proper,
considered and, most importantly, accurate manner. Valuations play a vital part in the process
of bringing long-term beneficial use back to redundant historic buildings, and understanding
of the valuation process is essential for all those involved with our historic environment.
There is scope for further guidance and education in this field.

The techniques referred to above to evaluate the non-financial benefits of the heritage, in
particular the contingent valuation method, will play a greater role in decision-making in
respect of large and often controversial development schemes that affect the historic
environment and our heritage.

It is inevitable that society will move towards greater energy conservation and sustainability,
and local planning authorities will in future be made to look more closely at the reuse of
historic buildings before allowing a new building to be erected. The chartered surveyor and
the economist will increasingly collaborate in the complex area of considering how society
values its heritage. For those involved with the historic environment, a greater understanding
of valuation issues and a merging of traditional and non-traditional methods will lead to
better decision-making for the benefit of future generations.