Social value of infrastructure: Seven case studies – Part 1
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07 September 2020
Case study 1: Travel Cost Method – Environmental Infrastructure
Background
Royal Botanic Gardens, Kew commissioned consulting company Oxford Economics to calculate the total value Kew Gardens contributes to society. As part of this work, they estimated the social value that Kew Gardens brings to visitors from the UK for the year 2018/2019.
Method
Oxford Economics used the individual travel cost method to estimate the use value of Kew Gardens for its visitors. The report analysed the implied amount visitors were willing to pay to visit the site based on the relationship between frequency of visits, the distance they had to travel and direct travel costs. The study used survey data of visitors to the site. The dataset consisted of 1,098 visitors to Kew Gardens for the years 2017/2018. It recorded a range of factors including how many times they had visited in the past 12 months, the respondents’ postcode and information on their socioeconomic profiles. By applying statistical techniques to the dataset, the study calculated how increases in travel cost affected the number of visits – that is, how it affected visitor demand – from which it then estimated the average willingness to pay to visit to Kew Gardens over and above the price paid for admission. The study then combined this with admission cost data to estimate the total demand for all visitors to the site, representing the total visitor use value.
Results
The paper found that Kew Gardens generated a large amount of social value, over and above what visitors paid in admission fees. The average annual value to a visitor, above what they paid for admission, was approximately £30 per visit. Combining this with the admission price and aggregating over the estimated total number of visitors yielded an annual value to visitors of £50.3 million in 2018/2019. This paper highlighted the importance of considering the social value of infrastructure, particularly when considering environmental infrastructure with relatively small economic value, but potentially large social value through their heritage and cultural significance.
Measuring and demonstrating the social value of infrastructure
Work undertaken by the Global Infrastructure Hub shows the infrastructure spend multiplier to be roughly 1.5. In other words, for every $1.00 spent, the benefit to GDP is $1.50. For this reason, infrastructure is increasingly regarded as an economic “supercharger”. With the COVID-19 pandemic forcing the widescale adoption of a new set of fiscal rules, its importance to the fight back from global recession has been underlined. In the first half of 2020, ESG stocks outperformed non-ESG counterparts, proving that social value has never been more valuable. But key questions remain. How can social value be accurately measured? Can social value considerations inform procurement processes? And what can be done to demonstrate the social value of large scale projects to an often sceptical public?
Case study 2: Hedonic Pricing Method – Social Infrastructure
Background
In the United States, 64 stadiums and arenas were built in cities from 1991 to 2006 for the four major sports leagues. Local government often subsidised the construction of the stadiums. To estimate whether the benefits to the public justify the costs of subsides, Feng and Humphreys (2008) studied how much social value two professional sports facilities, Nationwide Arena (NHL) and Crew Stadium (MLS), in Columbus Ohio added to their local residents.
Method
The hedonic pricing method was used to estimate the social value of the stadia for local residents. It analysed how distance from the stadium affected the price of a home. The paper used transaction data from the housing market in Columbus, Ohio. The data set consisted of 9,504 housing transactions in the year 2000. It included detailed housing characteristics such as size, number of bedrooms, number of bathrooms and other key determinants of price. The data was combined with School District, Census Block Group, and Police District data in order to capture neighbourhood characteristics such as school quality, environmental quality and crime rates. The distance between each house and the two facilities was calculated based on the latitude and longitude of the sports facilities and each house in the sample.
Results
The paper found that both facilities generated significant social value for local residents. This was realised through an uplift in price of US$2,214 per house for residents in the local area due to proximity to the stadia. Based on data from the 2000 census, the aggregate social value of the Nationwide Arena for those living within one mile of the facility was US$222.5 million and, similarly, the aggregate social value of Crew Stadium was US$35.7 million. This study helped local governments and cities to understand the importance of social infrastructure in the form of professional sport stadiums for generating social value, enabling decision makers to appropriately weigh the cost and benefits of subsidising their construction.
“Research found that Nationwide Arena (NHL) and Crew Stadium (MLS), in Columbus Ohio generated significant social value for local residents. This was realised through an uplift in price of US$2,214 per house for residents in the local area due to proximity to the stadia.”
Case study 3: Contingent Valuation – Transport Infrastructure
Background
The A303 road currently intrudes on the Stonehenge World Heritage Site (WHS), cutting through historic features of the WHS such as the Stonehenge Avenue. The UK government has committed to improving the A303 between Amesbury and Berwick Down and, in doing so, reducing the impact of the road on the WHS. Highways England considered a number of options that would divert the A303 away from the Stonehenge monument, either through a tunnel or via a bypass. Typically, in the UK, transport infrastructure appraisals focus on economic impacts but the A303 study was the first time that a major transport scheme looked at the wider social impacts as well. This study valued the impacts of removing the A303 from its current location on noise, heritage preservation and visual amenity, three key social benefits of the scheme.
Method
The study applied contingent valuation surveys to elicit monetary values for a hypothetical change in noise, tranquillity, visual amenity and landscape severance within the Stonehenge WHS, by directly asking individuals about their willingness to pay (WTP) or willingness to accept (WTA) compensation for a tunnel to replace the A303 road through the Stonehenge WHS:
“What is the maximum you would be willing to pay per year, to support a tunnel route? This would be via an increase in your overall annual national taxes for the three-year construction period of the tunnel.”
“Typically, in the UK, transport infrastructure appraisals focus on economic impacts. The study of the A303 road (which intrudes on the Stonehenge World Heritage Site) was the first time that a major transport scheme looked at the wider social impacts as well.”
Over 3,500 people completed survey, responses were composed of 432 visitors, 1,001 local residents and 2,102 individuals from the general population. Respondents were given contextual information and asked a set of attitudinal questions about the WHS. The survey recorded respondents’ background characteristics to ensure the survey was representative of the UK population.
Results
WTP values were calculated for the new tunnel for individuals who visited the site (average annual value: £23.39), road users (average annual value: £21.51) and the general population (average annual value: £14.41). Some respondents were not in favour of the tunnel scheme and for them they had a negative value for the new road layout with an average WTA of between
-£51.90 to -£81.35. The aggregated net benefit of the tunnel (total social value) for the UK population using these estimates was between £1.1bn and £1.4bn. The values elicited comprise:
(i) the use value derived from changes to the heritage experience, and
(ii) the non-use value that people place on the existence of the altered WHS including bequest value to future generations.
These values were included as part of the value for money (VfM) calculations in the business case for the transport scheme. As the majority of benefits of this project were non-financial, by including the wider social impacts the VfM figure more accurately reflected the value of the project to society. The VfM based on just the economic impacts resulted in a benefit cost ratio (BCR) of 0.6. Adding the wider social benefits increased the BCR to 1.15 indicating that the benefits of the project outweigh the costs.
This is an excerpt from the RICS Insight Paper Measuring social value in infrastructure: Lessons from the public sector
