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EMPIRICAL INVESTIGATION OF THE EFFECT OF PLANNING REGULATIONS ON COMMERCIAL PROPERTY VALUES

CHAPTER ONE

1.0INTRODUCTION

1.1 Background of the Study

Various authorities and scholars (Sukuran & Ho, 2008; Owei et al., 2010; Nnah et al., 2007) have given different definitions of town and physical planning. According to Sukuran and Ho (2008), town planning system is principally a system of preventive control of various land uses patterns where the controlling authority would not allow any approval for development activity if adverse impact on surrounding environment was visualized. Town planning can be seen as a means of increasing the values of private and profitable uses of land. Yet fragmented and multiple private interests in land restrict private owners from altering radically or enhancing the overall  pattern of use, and multiple ownership simultaneously retards the transfer of  land to more profitable users and inhibits large –scale development. Therefore, in this context, town planning can be seen both as means of establishing complementarity of  land uses while keeping conflicting uses apart through such devices as zoning, and as a means of speeding up the transfer of land between uses. By creating a climate of greater certainty; the zoning and density control aspects of town planning eliminate some of the imperfections of the property market, and enable land to move more readily to its highest and best use (Balchin, et al., 1995)

Owei et al. (2010) described physical planning as a process aimed at achieving orderly physical development with the overall aim of evolving a functional and live-able environment where individual and common goals can be achieved. The above definitions infer that planning is aimed at helping the society achieve various beneficial goals. Planning is regarded as a mechanism for the government to exercise its control on the urban development process. In Nigeria, Town Planning is interpreted in section 18 of the Town Planners Registration Council Decree No. 3 of 1988 (TOPREC), as the theory and practice of town and country planning by the ordering and control of the citing and erection of buildings and other structures and the provision of open spaces and such similar use of land, as the case may be, for the improvement of the human environment. Essentially, town planning is concerned with the spatial ordering of land use both in the urban and rural settings for the purpose of creating functionally efficient and aesthetically pleasing environment for living, working, circulation and recreation. For any system to work as expected there is always the need for control and, balance which is a form of regulation for necessary operation. According to Nnah et al. (2007),Planning seeks to guide the way our towns, cities and countryside develop.  This includes the use of land & buildings, the appearance of buildings, landscaping considerations, highway access and the impact that the development will have on the general environment.

Regulations are enforced as part of the planning strategy ‘to conserve and promote public health, safety convenience, and general welfare of the people and to provide for the future growth and improvement of the area’ (Booth, 2007).  The planning regulations are the various town planning framework (technical and legal) put in place which are to be strictly adhered to in order to achieve the goals of orderly development within the society.  To this end, it is the systematic assessment of land and water potential, alternatives for land use, and economic and social conditions in order to select and adopt the best land-use options. (Young, 1993). As mentioned by Dale and Mclaughlin (1999), there are two basic approaches to regulating how land is developed and used. This can be by way of Legislation applying to all properties uniformly: This includes a wide variety of rules governing the physical location of economic activities within jurisdictions; regulations governing the design, height, or capital intensity of commercial and industrial property and a permit system in which a property owner must make application at the time of a proposed development. Considering commercial property in Lagos metropolis, a commercial property is a bundle of goods. It refers to buildings or land intended to generate a profit, either from capital gain or rental income. Commercial property includes office buildings, industrial properties, hotels, malls, retail stores, warehouses, farm land and garages.

As it is being experienced in Lagos metropolis, most areas are changing residential property to commercial use largely because they command high rental value and a property owner is always inclined to that use that will command highest and best value (Osagie et al., 2012). Various reasons have been given for this, part of which includes town planning regulation. It is against this background that this research examines the effectiveness of planning regulation in relation to commercial property values in the Lagos Metropolis to determine the effects that adherence to planning regulation has on commercial properties.

1.2. Statement of Problem

Jaeger (2006) asserted that planning regulations could affect the market value of a property in a variety of ways. He also noted that while some of the effects might be straightforward; in most cases they are complex and can easily be misunderstood or misinterpreted. In correlation with the above assertion, it has been observed that different people have different perspectives about the level of positivity or negativity of planning regulations as regards commercial properties. For instance, when a regulation restricts the use of a particular commercial property due to strict adherence to zoning regulations, which is meant to control haphazard development in the city, such a plan may end up increasing the economic value of the property especially in the Central Business Districts (CBDs).

In such a situation, the demand for commercial properties exceeds the supply in the vantage area and will resultantly inflate the value of such properties. This will have positive effects on the commercial property owners but can be seen in a negative manner by the end users of properties in such an area due to high rental values. Further discussing likely problems that may arise from planning regulations, Jaeger (2006) stated that land-use regulations could cause a reduction in property value where the supply of land for an allowed use was higher than it would have been without the land-use regulation, while additional supply could cause a drop in the market price due to downward sloping demand. Thus the major problem of haphazard development in some planning regulation is that of abnormally high property values in some areas while lowering value in other areas. It is of pertinent that more studies are carried out to identify planning regulations that affect commercial property value for equal benefit of owner and tenants of the properties. Data on these issues are lacking and hence, this study is necessary to identify types of planning regulations affecting commercial property values in the Lagos metropolis. This study will resolve the following research questions.

1.3 Research Questions

This study focuses on the effect or impact of planning regulations on commercial property values in metropolitan Lagos. Some pertinent questions to enable the study attain its stated objectives are as follows:

1. What are the types of planning regulations that affect commercial property values in the study area?

2. Is there any relationship between planning regulations and commercial property values?

3. What are the effects of planning regulations on commercial property values in the study area?

4. What is the relative importance of various planning regulations on commercial property values?

1.4  Aim and Objectives

The aim of this research is to determine the effects of planning regulations on commercial property values in metropolitan Lagos. The objectives are to:    

a. To identify the types of planning regulations that affect commercial property values in the study area.

b. To investigate the relationship between planning regulations and commercial property values

c. To evaluate the effects of these planning regulations on commercial property values in the study area.

d. To analyze the relative importance of various planning regulations on commercial property values in the study area.

1.5   Research Hypothesis

Hypothesis 1

There is no significant relationship between planning regulations and commercial property values in Lagos metropolis. 

Hypothesis 2

There is no significant difference in the individual effects of various planning regulations on commercial property values

1.6 Significance of the Study

Various studies have been conducted on the effects of planning regulations on property values. According to Jaeger (2006), the planning system can have a significant impact on land values.  He stated that for example, in the United Kingdom, a piece of property can be worth a few thousand pounds before the grant of permission and millions afterwards. Land-use regulations in one part of a city may cause downward value changes, but at the same time may increase the value of land in another locality where the regulations do permit development. Property owners tend to assume that if only planning regulations did not stand in their way, a lucrative type of development would “land” on their own plot of land (Moore, 2005).

Ajibola et al. (2011) examined the relationship between urban planning and residential property values in some selected neighbourhoods within Agege Local Government council area of Lagos metropolis. He found out that there is significant level of difference in residential property values between the planned and unplanned residential areas. It has been assumed that land-use regulations invariably reduce property values when, in fact, they often have positive effects (Jaeger, 2006).

It has also been observed that the relationship between land use regulations and property values has been the focus of many studies neglecting planning a service that provides a scheme that facilitate physical development in an urban area. Grout, Jaeger, and Plantinga (2009) examined how Oregon’s land use planning system affects land prices in the Portland metro area. Since Oregon’s land regulations are intended to guide and control the location of development rather than to limit the supply of developable land, they should not produce scarcity-induced price increases. Using data on land values for vacant parcels in and around the Portland Urban Growth Boundary (UGB), they employ a regression discontinuity design. The researchers concluded that, Oregon’s landmark land use planning system was designed to influence the location of development, but not to constrain the amount of development.

According to Jeager and Plantiga (2007) when a land use regulation disallows or restricts a particular type of development or use of a property. If the restricted use of the property would yield higher profits to the landowner than its current use, the regulation would decrease the value of the property. If a property is essentially not feasible to develop then no decrease in value would result from a regulation that restricts development (Jeager and Plantiga, 2007). This study is vital as a means of assisting planners to have a full understanding of the market implications and as a means of plugging the gaps in academic research on the subject. It will also help government agencies in determining more fairly appropriate charges and taxes to levy in order to recapture value increments in commercial property arising from planning regulations.

1.7  Scope of the Study

The study focused on commercial properties in Metropolitan Lagos. Due to the magnitude, terrain and complex nature of Lagos State, the study was limited to Ikeja and Victoria Isalnd. Reason for this is that most estate surveyors and valuers are predominant in Ikeja and Victoria Island which itself are part of four zones identified within the larger Lagos metropolis. The four zones (Lagos Island, Apapa, Lagos Mainland, and Ikeja) represent commercial hubs of Lagos metropolis. Other studies reveal that there are five types of commercial properties in the study area. Viz, retail shop premises, banking spaces, office properties ware house and non-specific commercial properties.

This research, however, focused on offices, shops, banking spaces, and other types of commercial uses in the study area to the exclusion of residential, industrial, and non-specific type of commercial properties. Some factors have dictated the choice of Victoria island and ikeja. Firstly, the property market in the study area is well developed and it is possible to identify and analyze variations. Comprehensive data are available on commercial property values in the study area which is one of the few cities in Nigeria offering opportunity for comprehensive survey of its commercial properties, with enlightened occupiers of commercial premises thereby making data collection possible. Secondly, a number of property magazines are in circulation in the city where estate surveyors and valuers advertise commercial properties available for sale or letting. This makes the property market very active and up-to-date with stakeholders, prospective tenants, property owners, and investors versatile and having a good knowledge about the goings-on in the market.

Data on the values of commercial properties in Lagos metropolis would be gathered from practicing estate surveyors and valuers that operate in Victoria Island and Ikeja because large numbers of registered firms have their offices located in these locations and they also serve as the commercial hub in Lagos metropolis. According to NIESV (2014), more than fifty (50) percent of estate surveyors and valuers have their offices in the Lagos metropolis indicating that Lagos state has the highest population of practicing estate surveyors and valuers in Nigeria. This serves as a basis for choosing Lagos based practitioners as the study population.

1.8       Limitations of the Study

The study focused on the effects of planning regulations on commercial property values in Lagos metropolis. The study therefore analyzed the effects of planning regulations especially development control, building regulations, zoning, height restrictions and fencing on commercial property values in Victoria Island and Ikeja. The data were gathered through personal observation and opinions of Estate Surveyors and Valuers practicing in the study area  as elicited through the use of a structured questionnaire. The accuracy, or otherwise, of such opinions although not in doubt was not investigated. Apart from these, some challenges were encountered during the study. By virtue of the busy nature of estate surveying and valuation practitioners there was considerable reluctance on their part to volunteer information. Some of the respondents estate surveyors and valuers, delayed in completing the questionnaires and it took personal influence of the researcher (as their colleague) to obtain their eventual impressive responses. These limitations however neither affected the quality of data collected nor the conclusions drawn from it.

1.9 The Study Area 

The study is limited to metropolitan Lagos which is home to many companies and industries.  The city is located in the south-western part of Nigeria. The city of Lagos was under the Lagos City Council. The regions of Ikeja, Agege, Mushin, Ikorodu were under the former Western Region. According to Oni (2001), the boundaries of metropolitan Lagos as consisting of the territory within Latitudes 6°34′60″N and Longitude 3°19′59″E along the West African coast. Lagos was the capital city of the country before it was replaced with Abuja on 12th December, 1991. However, Lagos remains the commercial nerve centre of Nigeria as more than half of Nigeria’s industrial capacity is located there. It is the largest metropolitan area in Nigeria (Ayeni, 1979). Lagos State is made up of twenty local government council areas out of which sixteen form the metropolitan Lagos. 

The state is the smallest state in Nigeria in land area with an area of about 358,861 hectares or 3577sq.km (Odumosu, 1999). This represents only 0.4 percent of the entire area of the country.  Lagos metropolis lies generally on low lands, with about 17500 hectares of built-up area. The population growth rate of Lagos has serious implications on the trend of urban land use and development. This has serious consequences on land use planning in the state especially in urban areas. The city is a typical example in the history of growth and development of urban areas in Nigeria. This has dictated the choice of Lagos metropolis to know the planning regulations that are in place and to also know their effects on commercial property value

Fig 1.1: Map of Metropolitan Lagos

Source: Department of Surveying and Geoinfomatics, University of Lagos (2014)