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SCOTTISH EXECUTIVE CENTRAL RESEARCH UNIT

Countryside and Natural Heritage Research ProgrammeResearch Findings No. 22

Nature Conservation Designation and Land Values

D. Roberts, D. Macdonald, T. Kampas, J. Potts, P. Shannon and
F. Barroclough Macaulay Land Use Research Institute, BioSS and Bell Ingram Rural

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Main Findings

• SSSI designated land in Scotland varies significantly in both accessibility and economic potential. Of the total 990,000 hectares designated, 8% is covered with arable, improved or good rough grassland, 9% is either poor rough grassland or bracken and over 57% is heather moorland or peatland. Only 5% of SSSI land is within a 30-minute drive of a population settlement of 10,000.

• A higher proportion of ESA-designated land is of good quality but again only a small proportion (10%) lies within 30 minutes drivetime of a settlement of 10,000 or more.

• The land market had become more diverse in recent years, with some new buyers specifically having nature conservation objectives in mind.

• Since every different parcel of land gives rise to a particular set of potential income streams and since each landowner derives different values from land ownership, the impact of designation is both site and buyer specific.

• A statistical analysis found no significant effects of either SSSI or ESA designation on land prices. At the same time, the study highlighted site-specific cases where designation has influenced the price received for a parcel of land.

• Designation is most likely to have a positive effect on land values in cases where conservation and management interests are complementary (for example on some sporting estates) and/or where the potential buyer values protecting the nature conservation value of the land highly.

• Designation is most likely to be negative in cases where there is potential for development or alternative conservation damaging land use (for example, some commercial farms) and/or where the potential buyer does not highly value nature conservation.

• The increased availability of positive management agreements, suggested as part of the reforms to the SSSI scheme, may lead to enhanced conservation interest and stabilise farm returns. They are particularly beneficial for risk averse farmers.

Background to the Study

Land prices have a history of fluctuation and much previous research has suggested that the factors determining the value of land are complex and go beyond simply reflecting the value of the resource in production. In particular, tenure status, variability in income flows, potential earnings from alternative forms of investment, changes in capital taxes, interest rates and the social prestige and/or domestic privacy associated with land ownership have all been shown to influence land values.

Nature conservation designation also has the potential to effect the market value of land. This study drew on both theory and empirical analyses to explore the impact of both the SSSI and ESA scheme on Scottish land values.

Methodology

The research was carried out in a number of stages. These comprised a review of existing literature on the determinants of land values and the effects of designation, a GIS-based analysis providing information on the economic potential of land affected by designation, a survey of Scottish land agents, a statistical analysis of the land market, and finally a programming analysis to consider the effects of increasing the availability of positive management agreements in SSSI designated areas.

The Determinants of Land Values

Traditional explanations of the value of land relate to its role as an input in production. However land ownership also provides other "consumptive" opportunities including, for example, opportunities to enjoy and protect the natural resource and amenity values of the countryside. Increasingly, studies are suggesting that consumptive values have grown in relative importance in determining land values, driven, in part, by a change in the way people conceive and value the natural environment.

SSSI and ESA Designated Land in Scotland

In Scotland, there are over 1,450 SSSIs covering 11.6% of the total land area. Most SSSI designated land is privately owned and, in general, the areas are managed as part of working farms, sporting estates or forests. SSSIs land varies significantly in size and economic potential with over 57% currently heather moorland or peatland.

The current SSSI scheme has three implications for land owners and occupiers: it affects planning application procedures, it gives them a right to compensation for not carrying out an activity which could potentially affect the conservation value of the site, and finally they may be eligible to enter positive management agreements which enhance the conservation value of the site over that which exits under existing management regimes. Around 90% owners and occupiers of SSSIs have not sought to secure compensation through proposed changes in management, however, under the existing scheme, they have access to a possible future income stream.

A total of 10 ESAs have been designated in Scotland since 1987 covering 19% of the Scottish land area. ESA land is varies in quality but at the aggregate level is of higher economic potential than SSSI designated land. In order to enter an ESA scheme in Scotland farmers must commit themselves to carrying out certain positive conservation activities appropriate to their farm. They are then entitled to a payment for carrying out these activities and adhering to a basic management prescription for the area. Most farmers will only participate in the ESA scheme if the management prescriptions fit the farm well without major adjustment and if payments enhance income. Low entry into the scheme has to date been concentrated in areas where the opportunity cost of entry was high.

Survey of Scottish Land Agents

The survey of Scottish land agents suggested that, in the majority of cases, designation has had little bearing on market prices. However, the agents did bring attention to specific cases where designation could lead to either an increase or decrease in the price of properties. SSSI designation was more likely to be positively viewed on sporting estates where a diversity of interests exist and where conservation objectives are more easily integrated within the overall management plan of the property. In contrast, designation was more negatively thought of by potential buyers of commercial farms where it might have a constraining effect on profitability or potential for developments. In general it was felt that landowner attitudes to designation had become more tolerant over the last 20 years. Attitudes of farmers to designations have improved as a result of the type of positive management agreements embodied in the ESA scheme.

Statistical Analysis of the Scottish Land Market

A statistical analysis of the Scottish land market was carried out to assess and quantify the influence of different characteristics on land prices. Significant factors determining agricultural land prices were found to include size of plot, time of sale, land quality, some types of land cover, the extent of developed land in the area, and peripherality. Sales of land intended for non-agricultural use were more sensitive to the area of land already developed and distance from major service centre.

Critically, the analysis found no significant effect of SSSI or ESA designation on land prices. The analysis also failed to find empirical evidence to support the notion of increased role of consumptive factors on land prices suggesting, instead, that the Scottish land market is still dominated by agricultural interests.

Positive Management Agreements

Particular reforms being considered to the SSSI system include

• reducing the circumstances in which a land manager can receive compensation for not undertaking a project which would damage the nature conservation interest of a site, and

• increasing the availability of positive management agreements to pay land managers for action to conserve or enhance the nature conservation interest of the site.

The abolition of landowner rights to compensation may result in a downward pressure on land values since it removes a protection for future income streams. In contrast, the extension of positive management agreements may have a positive effect on the value of SSSI designated land because it entitles provides the land owner/occupier with an additional source of income. The net effect on land values will depend on how much money is available to fund positive management agreements and the precise nature of the agreements.

An important generic finding of the study was that management agreements have an additional benefit over and above that of conserving natural heritage values. In particular, for risk averse farmers it reduces the need to hedge against uncertain farm gate prices.

About the Study

This study was undertaken by D. Roberts, D. Macdonald, T. Kampas, J. Potts, P. Shannon and F. Barroclough of the Macaulay Land Use Research Institute, BioSS and Bell Ingram Rural between December 2000 and October 2001. The research was funded by the SEERAD Agricultural and Biological Research Group's Flexible Fund.