Wind Farms Drive Down House Prices

LONDON -- When a country improves its infrastructure -- things such as roads, telecommunication networks, and ports -- in theory, this should boost economic growth and improve the quality of life, so long as the money isn't wasted on political vanity projects like Alaska's infamous "bridge to nowhere."

So a new railway station or motorway junction will usually boost the surrounding area because it attracts businesses, jobs, new residents, and tourists. But some types of infrastructure -- say, a new power station -- can also have a damaging impact upon the neighborhood.

Last week the Valuation Office Agency -- the organization responsible for council tax assessments -- said that wind farms are another type of infrastructure that comes with a big negative after it ruled that giant wind turbines depress house prices in their vicinity.

Good for the country; bad for the locality
Britain nowadays has become a nation of "NIMBYs," because most people will only support a new development if it is "not in my backyard." But in many cases, this is a perfectly sensible reaction. After all, who would want to live next door to a toxic waste incinerator?

"NIMBYism" is particularly common where a proposed development should produce benefits that are widely distributed throughout Britain but also inflicts a substantial detriment upon the local community. Wind farms are the latest example.

25% off thanks to wind turbines
Wind turbines generate power for the country (at least when the wind is blowing), but they've taken a lot of flak because they decimate local birdlife, and the energy they produce is very expensive. You can now add house prices to this list of negatives, as the Valuation Office Agency recently moved several houses into lower council tax bands purely on the grounds that they were situated close to wind farms. The value of one house fell by 25%.

This is despite many years of official statements that wind turbines do not affect house prices. The same thing used to be said about National Grid's (LSE: NG.L  ) high-voltage overhead power lines, but property prices fall as you come close to them, and if there is any uncertainty about the route for a new power line, people stop buying houses there.

Infrastructure can be critical
When a company is planning a new project, it should consider whether the existing local infrastructure is up to the job. Canadian property company Olympia & York found this out the hard way when it redeveloped Canary Wharf in the 1980s. There wasn't much demand for its buildings because the area (London Docklands) was poorly served by public transport at the time.

As a result, Olympia & York collapsed in the early 1990s. Several years later, Canary Wharf was one of the fastest-growing parts of London, with the trigger being the completion of extensions to both the Docklands Light Railway and the Jubilee Line.

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Getting companies to build for the council
Local politicians know that if a major supermarket chain wants to build a new store in their district, they can extract concessions from it as a quid pro quo for granting planning permission. Usually this involves getting the supermarket to pay for some local infrastructure projects, which eases the pressure on the budget and impresses the voters.

This cuts both ways. If Tesco wants to build a new supermarket, when the council gets it to improve the local road network, this will make it easier for people to get to the new store. The other demands the council makes are part of the cost of doing business.

The state school education that costs money
It's well-known that a good state school adds tens of thousands of pounds to house prices in its catchment area. That's because many parents will pay a premium -- which is almost 92,000 pounds in the case of Britain's top 100 primary schools -- in order for their children to go there. Those who can't or won't pay generally don't get access to the better schools.

But when a local education authority starts to use admission lotteries to determine places at oversubscribed schools, this depresses house prices in some areas. That's because if owning a local house no longer guarantees a place in a good school, then the premium will lose some of its value.

If our tax system were more like America's, where a greater proportion of the taxes that are raised locally are also spent locally, rather than being sent to central government, there would be a lot more enthusiasm for new developments and fewer NIMBYs.

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Tony owns shares in National Grid but he doesn't own shares in any of the other companies mentioned in this article. The Motley Fool owns shares of Tesco. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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