City Treescapes and Value

February 23, 2003

Measuring the Value of Design and Creativity—Value of a City’s Treescape

Johnny Appleseed Knew a Thing or Two

about the Value of Creation

Introduction

We can usually quite easily measure the cost of a ‘thing’ and, as a result, we find it easier to establish a budget for the cost of a new project than to determine, with any degree of confidence, the revenues or stream of benefits that flow from that project.

At Carleton University’s (CU’s) School of Architecture, we are trying to change the School’s paradigm from a sole reliance on justifying ourselves as Architects based on the cost of our design services to a new paradigm where we emphasize the benefits created by excellence in design services.

Gosh, even McDonald’s Restaurants are converting from the Dark Side and spending more on the design of their franchises (at least in France they are). McDonald’s is doing this for a reason—better designed stores are attracting more customers, who are staying longer and spending more per capita.

In other words, better design is a paying proposition. What I want to see is that more of the value created by designers is captured by them through higher fees. Higher fees are justified to the client by higher ROI for clients. Today, everyone should want to be able to measure benefits as well as costs; as they said in Jerry McGuire: “Show me the money.” And get higher fees too.

So here are the three questions we are going to ask in this essay:

Q1. Can we measure ROI from dollars spent on design?

Q2. How much of the ROI can be attributed to greater net benefits derived from design and creativity versus, say, lower costs or higher revenues derived from other sources?

Q3. How can creative persons obtain more value for what they do?

We have looked at an example of a local interior design firm, who after 21 years in practice finally had to start doing some marketing and learn to justify their design services on the basis of ROI (Return on Investment) for their clients—spend more on design services but get much greater benefits too.

What if we could show by a cross-sectional analysis (i.e. a comparison with other existing museums) that an extra, say, $35m invested in the design and construction of a National Museum would result in an increase in annual visitor count of 2 million at $10 each for admission? Well, obviously, we don’t need to go through the rigmarole of a spreadsheet analysis to know that a $35m investment that produces an extra $20m per year in revenues is worth doing.

Folks like former Canadian Prime Minister Pierre Trudeau and Architect Douglas Cardinal understand this at the nano scale—they just have a gut feeling about this stuff; they get it intuitively. Mr. Cardinal often describes Monsieur Trudeau as his ‘patron’ with respect to the design and construction of the fabulous Canadian Museum of Civilization. Douglas uses the term in its purest form; he understands that creative people need the support of powerful people and he respects utterly the fact that creative people are entrusted with great responsibility to protect the interests of their patrons and their audience too.

Canadian Museum of Civilization:

Sinuous Curves, Extraordinary Design, Greater Value from Creativity

An unbelievable design like this has got to be worth more than another square box, so higher fees should be justified on the basis of more hours worked on the part of the Architect (clients don’t really care about this) and a better product (most clients don’t care about this either). No, what most clients want is to be shown a higher ROI for their money before they will pay you more.

At CU, we teach our entrepreneurs and entrepreneur designers (it warms my heart to see how many Architects are now taking an interest in these matters) and to measure the ROI using an Internal Rate of Return (IRR) methodology. The IRR seems to be the most useful and accurate way to measure and to weigh the relative costs and benefits of a new project or program. Knowledge of these techniques puts designers on a more level playing field with their patrons so they can negotiate better deals (read higher fees) for themselves.

Value is measured not just on the basis of costs and benefits. Value in a free market is whatever a willing buyer and willing seller agree to. It can be much higher than costs, about equal to costs, or much lower. Obviously, creative persons would prefer not to sell their services or products (art) below cost but this isn’t unheard of.

Vincent Van Gogh,

Poor until the End—Don’t Let This Happen to You

So we may determine that the IRR from investment A is much greater than from investment B but that has nothing to do with the price one might get for A or B.

What we are going to learn from the model I created for the following example of planting ordered street trees in my community surprised me—we are going to see that almost all the increase in value from an improved treescape is derived from the act of creation and design and not from, say, decreases in air conditioning costs. And also, we are going to conclude (unfortunately) that you don’t necessarily get what you deserve in this life. Read on, Dear Reader.

Constraints

My wife, Dawn, and I were chatting around the dinner table one evening last week and she asked me: “What is the value of a better streetscape, umm, treescape here on Zokol Crescent (where we live)?” Well, she didn’t actually put in quite this way but the message was—if we got all our neighbors together and planted trees along our road, that would be … nice.

So I left the room and booted up my PC and created a spreadsheet right away to see if we could measure the value of a creatively designed treescape for Zokol, which you’ll see shortly.

The constraints I put on this exercise included:

that the treescape would be professionally designed;
that the trees would be at least 2 inch caliper specimens so that we didn’t have to wait 20 years for the effects to be seen—visual impact would be felt after five;
that we would use a design that brought uniformity to the tree planting and to the street;
that ultimately we would have a canopy of trees form over our street;
that the trees would be long, lived native hardwood species;
that the trees would not all be the same species in case of disease;
that the trees would be planted by professionals;
that we would not accept a ‘no’ from the City who might raise objections (like, say, that the trees require maintenance, that they might interfere with underground services (blatantly wrong if you pick the right species), they mess up city streets when their leaves fall (hmm), that the first six metres of our front yards should be clear of everything except grass (ugh), etc.);
that we would need at least 50% of the home owners to agree to participate in the program so that we didn’t end up with a Hodge Podge effect and that the ‘free rider’ problem (the mooches amongst us) would be manageable;
that the budget would not exceed $250 per home owner;
that this investment in design and development must have a ROI that exceeds most home owners’ investment portfolio rates of return.

Gee, Maybe Street Trees do add Some Value, After All

Valuation

So how do we go about measuring the value of an improved treescape? Well, first of all, let’s not reinvent the wheel. Let’s look at what a Google search turned up (http://www.arborday.org):

"Trees can boost the market value of your home by an average of 6 or 7 percent." -Dr. Lowell Ponte

"Landscaping, especially with trees, can increase property values as much as 20 percent." -Management Information Services/ICMA

"Healthy, mature trees add an average of 10 percent to a property's value." -USDA Forest Service

Ordered Street Trees Forming a Canopy

So, OK, let’s use the low end of the range for value increase—a mature treescape adds, say, 6% to property values with emphasis on the word ‘mature’. Let’s further assume that the streetscape is mature at 20 years using, say, maples and oaks, which happen to grow very well in the clay soils around where I live.

So we can hypothesize that we will see value increases something like:

Year 0 $250 per home (i.e., the cost of the program)

Year 5 10% of the ultimate value

Year 10 33% of the ultimate value

Year 20 100% of the ultimate increase in value of 6% per home

We could make other assumptions than these but this seemed reasonable to me. As it happens, the ROI is not too vulnerable to these assumptions and if you don’t like mine, change the model for yourself and you’ll see the ROI is not very sensitive to this time profile of benefits.

Of course, there are other benefits of planting trees in city spaces like, for example:

"One acre of forest absorbs six tons of carbon dioxide and puts out four tons of oxygen. This is enough to meet the annual needs of 18 people." -U.S. Department of Agriculture,

"Trees can be a stimulus to economic development, attracting new business and tourism. Commercial retail areas are more attractive to shoppers, apartments rent more quickly, tenants stay longer, and space in a wooded setting is more valuable to sell or rent." -The National Arbor Day Foundation,

"Trees properly placed around buildings can reduce air conditioning needs by 30 percent and can save 20 - 50 percent in energy used for heating." -USDA Forest Service

and

"Shade from trees could save up to $175 per year (per structure) in air conditioning costs." -Dr. Lowell Ponte.

I have based the increase in property values from an improved treescape on a biological growth curve—values tend to increase slowly from Time 0 (where the increase in property values is presumably just equal to the cost of planting them) to about Year 10 when a faster annual increase in value sets in culminating in a maximum increase in value at Year 20.

Bigger is Better

I wanted to try one more case—I wanted to see if savings in, say, annual AC (Air Conditioning) costs might have a significant impact on the IRR (I use Internal Rate of Return and ROI as interchangeable terms in this essay but I am actually calculating the IRR here).

I was a bit lazy and used straight line approximations to calculate the annual savings in AC costs rather than generating a true biological growth curve. So I assumed constant increases from 0 to 5, from 5 to 10 and from 10 to 20 years. Given the number of assumptions used here, it doesn’t really matter. Also, because Ottawa is such a northern shelf city (it is a sunny -27 degrees Celsius as I write this and the sun is heating up my home office nicely, btw), I reduced the savings in AC costs from Dr. Ponte’s $175 USD number to, an arbitrary, $75 CAD in Year 20.

Bruce and Dawn’s Home Office— This is Dawn’s (Much Neater) Half

Well, you can see from the attached spreadsheet the impact of a reduction in AC costs (Case 4) on the ROI. It changes the IRR from 23% p.a. to 24% p.a.—a pretty minimal change. Clearly, the most powerful impact of street tree planting is the increase in property values that arises from the perception that this street is a more desirable place to live, a more aesthetically pleasing place to come home to.

This is an important lesson for all manner of creative people to learn—that much or even most of the value in a ‘thing’ is in the eye of the beholder. Creative people involved in design and invention tend to undervalue their contribution to the economic well being of their society. In this example, 95.8% of the increase in the ROI (i.e., 23%/24%) can be attributed to the act of creation and just 4.2% can be attributed to the actual measurable change in benefits (that is, the annual savings in our neighbors’ AC bills).

I have to admit that what our Dean of Engineering and Design, Samy Mahmoud, said to me a few years ago seems to be true: “You don’t get what you deserve (in our society); you get what you negotiate.” So architects, landscape architects, industrial designers, interior designers, artists, musicians, actors, writers (hmm), directors, decorators, set designers, photographers, videographers, graphic artists, even engineers (hmm) and scientists take note, you need to say: ‘More please, Sir.’

Of course, there are many other benefits derived from tree planting than we have included above. However, we have enough of a justification, at least for the residents of my street, to consider implementing this program, just from the economic benefits included here. Very few people tend to be ‘other directed’ (i.e., motivated by something other than money and self interest). But that’s OK, because if they follow their own personal interests in this case, they neatly coincide with the greater social good too.

Nature’s Free Air Conditioning

Design Economics Front Page

Entrepreneurialist Culture Front Page

www.DramatisPersonae.org

www.Exploriem.org

"Trees can boost the market value of your home by an average
	of 6 or 7 percent." -Dr. Lowell Ponte
"Landscaping, especially with trees, can increase property values as
	much as 20 percent." -Management Information Services/ICMA
"Healthy, mature trees add an average of 10 percent to a
	property's value." -USDA Forest Service
"One acre of forest absorbs six tons of carbon dioxide and puts out
	four tons of oxygen. This is enough to meet the annual needs of
	18 people." -U.S. Department of Agriculture
"There are about 60-to 200- million spaces along our city streets where
	trees could be planted. This translates to the potential to absorb
	33 million more tons of CO2 every year, and saving $4 billion
	in energy costs." -National Wildlife Federation
"Trees properly placed around buildings can reduce air conditioning needs
	by 30 percent and can save 20 - 50 percent in energy used for
	heating." -USDA Forest Service
"Trees can be a stimulus to economic development, attracting new
	business and tourism. Commercial retail areas are more
	attractive to shoppers, apartments rent more quickly, tenants
	stay longer, and space in a wooded setting is more valuable to
	sell or rent." -The National Arbor Day Foundation
"Shade from trees could save up to $175 per year (per structure)
	in air conditioning costs." -Dr. Lowell Ponte
"The planting of trees means improved water quality, resulting in less
	runoff and erosion. This allows more recharging of the ground
	water supply. Wooded areas help prevent the transport of
	sediment and chemicals into streams." -USDA Forest Service
"In laboratory research, visual exposure to settings with trees has
	produced significant recovery from stress within five minutes,
	as indicated by changes in blood pressure and muscle
	tension." -Dr. Roger S. Ulrich Texas A&M University
"Nationally, the 60 million street trees have an average value
	of $525 per tree." -Management Information Services



"Trees can boost the market value of your home by an average
	of 6 or 7 percent." -Dr. Lowell Ponte
"Landscaping, especially with trees, can increase property values as
	much as 20 percent." -Management Information Services/ICMA
"Healthy, mature trees add an average of 10 percent to a
	property's value." -USDA Forest Service
"One acre of forest absorbs six tons of carbon dioxide and puts out
	four tons of oxygen. This is enough to meet the annual needs of
	18 people." -U.S. Department of Agriculture
"There are about 60-to 200- million spaces along our city streets where
	trees could be planted. This translates to the potential to absorb
	33 million more tons of CO2 every year, and saving $4 billion
	in energy costs." -National Wildlife Federation
"Trees properly placed around buildings can reduce air conditioning needs
	by 30 percent and can save 20 - 50 percent in energy used for
	heating." -USDA Forest Service
"Trees can be a stimulus to economic development, attracting new
	business and tourism. Commercial retail areas are more
	attractive to shoppers, apartments rent more quickly, tenants
	stay longer, and space in a wooded setting is more valuable to
	sell or rent." -The National Arbor Day Foundation
"Shade from trees could save up to $175 per year (per structure)
	in air conditioning costs." -Dr. Lowell Ponte
"The planting of trees means improved water quality, resulting in less
	runoff and erosion. This allows more recharging of the ground
	water supply. Wooded areas help prevent the transport of
	sediment and chemicals into streams." -USDA Forest Service
"In laboratory research, visual exposure to settings with trees has
	produced significant recovery from stress within five minutes,
	as indicated by changes in blood pressure and muscle
	tension." -Dr. Roger S. Ulrich Texas A&M University
"Nationally, the 60 million street trees have an average value
	of $525 per tree." -Management Information Services