New ways of dealing with compensation claims for residential properties hit by the development of new roads are being suggested. Iain Lake explains
Researchers at the University of East Anglia (UEA) and University College London (UCL) have come up with new ways of assessing compensation. Their study focused on claims about property price reductions resulting from the use of new roads. These claims stemmed from seven physical factors: noise, vibration, smell, fumes, smoke, artificial lighting and discharge onto the land of solids and liquids.
The study, undertaken for the Scottish Executive, looked at compensation payments under Part 1 of the Land Compensation Act 1973. The Act enables the owner of a piece of land or property to be compensated for any reduction in price resulting from the use of public works, including the construction of new roads.
Under the Act, compensation cannot be paid for other impacts such as a loss of view. Furthermore, any increase in property prices arising from the new road – for example, because of improved accessibility – is deducted from the compensation payable.
The complexity of claim assessment has led increasingly to disputes regarding compensation assessments, resulting in several instances of litigation. In addition, “no win, no fee” arrangements between claimants and teams of valuers have substantially increased the number of Part 1 claims, and the amount of taxpayers’ money paid in compensation.
The UEA/UCL study had two aims:
- to provide valuers with an extra tool to help determine the appropriate level of payment.
- to produce compensation values that are easier for claimants to understand.
Hedonic pricing
It was decided that the most appropriate method was hedonic pricing, which relates property prices to a wide range of factors.
The study related the price of 3,500 properties in Glasgow to the many factors that may determine their value. These included the structure, neighbourhood, accessibility and local environment of the property, as well as variables representing the impacts of nearby roads. The level of road noise at each property was used as a surrogate for the seven compensatable factors (noise is the factor cited by most Part 1 claimants as causing annoyance and property price depreciation).
A statistical model was then used to relate all the factors to property price and to extract the impact of noise on that price. The model also contained variables representing the visual and accessibility effects of roads, ensuring that the impact of noise was independent of these or any other factors.
Results indicated that each decibel increase in noise from existing roads decreased property prices by about 0.2%. The UEA/UCL team recommend that this finding is taken into consideration in the assessment of future compensation claims.
Change in noise levels
A revised claims assessment procedure would therefore focus on the house price at the claim date, and the change in noise levels induced by that road. Information on the change in road noise can be determined from the Environmental Impact Statement accompanying the new road. However, if the observed traffic flows differ from those predicted, the noise level at the property would need to be recalculated.
By applying the estimated depreciation rate of 0.2% per decibel, the corresponding property price depreciation can be assessed. Other issues such as the accessibility impacts of the new road are assessed as before – via the valuer’s expert judgement.
It may be possible to estimate a level of Part 1 claims before a road is constructed. If this can be done in the road-planning stage then the road design can be modified to reduce these claims before construction starts. If the costs of modification are less than Part 1 savings, then they should be applied to the scheme.
Using the results of this research should assist valuers in setting compensation levels and justifying them should any Part 1 claim be contested in the Lands Tribunal.
The UEA/UCL team is hoping to extend this work to other areas of the UK to test the transferability of findings across a variety of locations.
Iain Lake, Ian Bateman, Brett Day and Andrew Lovett conducted the research.
For further details contact Iain Lake at UEA: i.lake@uea.ac.uk.
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Current procedure |
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The complexity of assessments is leading to disputes |
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Suggested procedure |
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A more straightforward system is proposed |
