Infrastructure and services are major drivers in appreciating land prices.
One of the most influential factors driving increases in land values according to the 2015 “Land and the City” research guide* published by the world-renowned Lincoln Institute of Land Policy are the addition of services and infrastructure as well as changes in zoning.
While it is generally accepted that the change of use of land to urban or residential can provide substantial uplift in land values, it should never be ignored that achieving such a change can be a higher risk, higher return investment that requires time and money to complete. Once land is zoned for development it will always be an appreciating asset and the reasons for this are simple: supply is limited and no one is producing any more. The demand for land is constantly growing as the population increases and since its supply is limited, its price must increase over time.
Take a piece of land and change the zoning and the land value increases substantially.
Now take that same piece of rezoned land (with a value as a whole) and sub-divide it into many smaller, buildable plots and the overall value increases even further.
According to the Lincoln Institute report, beyond rezoning there are a number of influencing factors that have positive effects on land values and these include improved access, roads and services, development of neighbouring areas and unique amenities – all of which add ‘layers’ of value to land.
A land parcel with planning permission has a value derived from the local market, yet the same parcel of land with water and electricity installed has a higher value.
Likewise, the same parcel with roads completed and within a short distance of a luxury leisure amenity has a substantially higher value still – it is the accumulated effect of these added assets that not only drives the value of the land up, but also increases the desirability of that land.
Now locate this new land parcel next to an established sub-division or neighbourhood with good transport links and local population and its price increases further – this is the effect of accumulated factors.
An example of the above would be the ongoing progress at Forest Lakes Country Club, Nova Scotia, Canada.
The developers, Terra Firma Development Corporation originally acquired the land prior to rezoning. It appreciated substantially in value when the local authorities approved the Masterplan Development Agreement in 2012. At that stage, Phase One (which includes the neighbourhoods of 1A and 1B) had no infrastructure and no services in place. In 2013, real estate buyers were given the opportunity to reserve investment plots, with the average plot price at C$98,000.
The developer has spent the last 2 years carrying out extensive surveying and civil infrastructure and physical works. This includes the construction of 8 roads serving the neighbourhoods, construction of the wastewater treatment facilities, and installation of all other utilities, including the cabling for the internet and telephone and the electrical power supply bringing electricity to the entire area.
At the same time they began the clearing and ground work on an 18-hole Nicklaus Design golf course, working diligently throughout the last year preparing the course and creating lakes, earthmoving and other related activities, and will fully construct 9 holes ready for play in 2017. The full 18 holes will be ready for play 2018.
The net result? Buyers in 2013 are now completing on plot reservations where the average price (based on independently assessed values) is now C$157,500 – an increase of 58% due to added services, infrastructure and amenities.
What the Lincoln Institute cite in theory, Forest Lakes Country Club has proven in reality – that infrastructure and services are major drivers in appreciating land prices.
This is an exciting time at Forest Lakes Country Club. The developer has proven the value effect of services and infrastructure on land prices and is now embarking on the development of new neighbourhoods and the building of new homes. Vertical construction (building) will add value to new areas, as will services and roads. In addition, in the next few years, the development will begin to unveil its ‘X-Factors’ as the golf course nears completion, the keenly anticipated highway interchange takes shape, the construction of the village commercial centre and the family entertainment centre begins and the hotel & Spa construction breaks ground.
As good an opportunity as Forest Lakes has proven to be for Landcorp clients so far to date, the next few years promise to provide opportunity and profit and as such, it is a project that we are both excited and proud to continue to work with Terra Firma Development Corporation.
*https://www.lincolninst.edu/pubs/download.asp?doc_id=2953&pub_id=3589
