I’ve spent a good part of the morning wrestling with an unusually confusing post at WorldChanging on trying to include environmental benefits and sustainable design features in real-estate valuations. I think it il
Seems a bunch of property assessors got together in Vancouver earlier this month to talk about how to do it, now that investors are increasingly interested in the very long term costs and benefits of owning particular buildings and pieces of property. They called it the Vancouver Valuation Summit and Premier Gordon Campbell gave the keynote address, so it was a pretty serious thing.
Like accountants, property “valuers” need to work according to commonly accepted standards so buyers and sellers can make apples-to-apples comparisons. If you’re thinking of buying a house and you have it checked out, you can’t have the valuer telling you it’s worth $50,000 more because he really likes the shade of brown on the shingles, and if you’re a big company trying to decide between two new office towers, you need to know that when your experts examined the heating systems, they used the same rules to figure out what it’s going to cost to keep your staff warm over the next 25 years. The planners of the Vancouver summit say:
[V]aluation standards need to change if they are to capture sustainable features, and, by changing the mechanism required for financing businesses and property to embed sustainability, will “mainstream” sustainability within viable everyday business.
This all seems important, yet technical and mundane. The rules have fallen behind the times, we’re overhauling them. Good for you, carry on, let us know when you’re finished.
But the speech of Stephen Williams of the Royal Institute of Chartered Surveyors seems to have confused the issue. From WorldChanging’s Joshua Wiese:
Williams opened the summit’s official discussion on “Valuation and Sustainability” with a global perspective on possible future models for measuring sustainability both financially and non-financially. “Are ‘green’ properties with lower carbon footprints, more sought-after and therefore more valuable?” he asked. “Should we measure investment real estate purely on the basis of a monetized return or should we, as investors, look at the ‘triple bottom line’ of economic, social and environmental benefits?”
Williams noted that “evidence over the past year that major funds, developers and investors are beginning to include these factors in their real estate decision-making in most major markets.” He sees this as a major shift in the way real estate investors measure their returns.
Valuation and Sustainability
Done correctly, economic valuation can help us understand the total value or contribution that ecosystem services make to society, and then see how that total value changes as we make more or less sustainable choices. This demonstrates the benefits that ecosystems can generate, and the increased benefits of appropriate management.
Whoa. As far as I can tell, Williams is focused on the micro of individual properties, not the macro of whole ecosystems. Figuring out whether green construction techniques make a building more marketable and by how much is a completely different thing from putting a dollar figure on the social benefits of “ecosystem services.” One’s about more accurately determining what a piece of property is worth to its owner; the other is about figuring out what it’s worth to everyone else, in ways everyone else doesn’t pay for. This way madness lies.
There is only one bottom line: it’s easy to spot, because it’s the one at the bottom with the dollar-sign in front of it. We can talk all we like about other values, but you can’t run a business, or a household, on pixie dust. The goal, where the environment is concerned, should be to get environmental costs included in the financial bottom line, not invent a new system of accounting that doesn’t account for anything measurable.
For the longest time, we thought the plant could absorb infinite quantities of carbon. Turns out we were wrong — carbon-absorption capacity turns out to be something that’s limited. It needs to be distributed in the same way land and food and Raymond Chandler novels do, and governments in their role as economic regulators are working on ways to do it. Clean water production might turn out to be the same. Both of these are measurable, in the sense that you can tell when someone’s adding to or consuming part of the total supply.
Biodiversity, say, or the spiritual benefits of a nice long walk in the woods, are not measurable in the same way. They’re not commodities, and pretending they have a place among commodities is dangerously misguided.
Consider the social value of land as a place to put public transit. Placing social value on other people’s property is already a hindrance to long-term planning. Almost every major public-transit project, for instance, involves expropriations of property from the poor souls whose land is right on the proposed line. Edmonton’s current LRT extension required tearing down long lines of houses along; the now-scotched plan for an LRT in Ottawa involved the expropriation of a small number of houses at an extremely vital spot for a bridge across the Rideau River. In both cases, the purported social value of the trains entitled municipal governments to turn people out of their homes in a way that no shopping-mall developer could have, for less money in compensation than the owners would have insisted upon.
Knowing that expropriation is always an option means governments don’t have to think far ahead with infrastructure so they can buy the land they need while it’s still cheap. They don’t have to invest now for the long term, because they can rely on an imaginary second (or third) bottom line to justify ignoring the first.
I’m not saying biodiversity and other non-commodifiable good things don’t need to be protected or that they can’t be. But let’s use the right instruments for the right things, and not corrupt the perfectly serviceable mechanisms of markets and money in trying to pretend they can do something they can’t.
Photo of an Edmonton LRT station by Flickr user wrumsby,
used under a Creative Commons licence.