AND POLICIES

3.1 INTRODUCTION

It will be argued in the empirical studies that the values ascribed to properties by valuation professionals, and the decisions taken by property developers, as to whether or not a contaminated site should be redeveloped, will be influenced by individual perceptions of land contamination issues. Those perceptions will be affected by a number of factors, such as personal experience and press reports. Government policies in respect of liabilities for the registration and treatment of contaminated sites will also influence the perceptions of property market actors. Similarly, as was demonstrated by the response to the registration proposals contained in Section 143 of the Environment Act 1990, the perceptions of property market actors concerning adverse impacts may be so strong as to result in a complete re-evaluation of Government policies (see Box 1.1). Perceptions and policies are therefore linked and have the potential to impact upon each other, with resultant implications for valuation and the redevelopment of contaminated sites.

In seeking to answer the question “what is property development?”, the Government’s Advisory Group on Commercial Property Development offered this response:

“Development comprises the following tasks:

(i) the perception and estimation o f demand for new buildings o f different types;

(ii) the identification and securing o f sites on which buildings might be constructed to meet that demand;

(iii) the design o f accommodation to meet the demand on the sites identified;

(iv) the arrangement o f short and long term finance to fund site acquisition and construction;

(v) the management o f design and construction; and

(vi) the letting and management o f the completed buildings.”

(Government Advisory Group on Commercial Property Development, 1975)

Twenty years later this description of the development process may still apply but is it valid in situations where the development site is affected by contamination? The redevelopment of contaminated sites is reliant upon the perception and estimation of the developer in respect of the demand for new buildings, perhaps even more so than in respect of uncontaminated sites. In addition to assessing potential demand for the new buildings, the intending developer of a contaminated site will need to assess the extent to which prospective purchasers and/or tenants may be discouraged by the history of contamination.

In identifying and securing sites for development the intending developer, and his or her professional team, will need to carefully weigh the attributes of a contaminated site, in terms of price, location and physical aspects, against the problems of dealing with contamination and the attractiveness of alternative greenfield sites. This may result in the developer requiring a higher rate of return from the contaminated site. The development of contaminated sites may also impose design constraints, in respect of both the decontamination work and the proposed new buildings. All of these factors will have a direct effect on the cost of the development and its profitability.

Finance for developments on contaminated sites, both for the development period and long term, may be more difficult to arrange than for greenfield sites. This may be due in part to the perception of bankers and other funding institutions that

developments on contaminated sites involve a much higher degree of risk than those on uncontaminated sites. The providers of development finance may also require higher margins in respect of loans for the redevelopment of contaminated sites, further investigative work and the availability of additional collateral, as confirmed by a recent survey of lenders in the United States (Kinnard and Worzala, 1996). Such requirements may be justifiable given the problems of definition discussed in Chapter Two and the lack of any set standards of treatment, both of which will affect the funder’s perception of risk.

Management of the design and construction aspects of developing a contaminated site will almost certainly involve the developer in the employment of additional specialist consultants and the implementation of stringent controls in order to protect the health of building workers and subsequent users of the buildings. The letting and management arrangements will need very careful consideration, especially in situations where residual contaminants are to be left in the ground, or where the generation of methane, or other gases, is a possibility which requires to be monitored.

Therefore, whilst it would appear that the definition produced by the Government’s Advisory Group can be applied to the redevelopment of contaminated land, a prospective developer must factor into his or her perceptions of the project additional cost and design influences, as well as the perceptions of other actors, such as bankers and future occupiers, with regard to the risk and uncertainties attaching to development. This chapter will consider

perceptions of risk and uncertainty, and the extent to which these may be influenced by government policies.

3.2 PERCEPTIONS OF RISK AND UNCERTAINTY

“Perceived risk is the risk seen by the public in the marketplace” (Mundy 1992a, pll). According to Slovic (1992, pi 19) risk does not exist “out there”, independent of minds and cultures, waiting to be measured. Instead, risk is inherently subjective, ‘invented’ by human beings “to help them understand and cope with the dangers and uncertainties of life. There is no such thing as ‘real risk’ or ‘objective risk’.” (Slovic 1992, pi 19) and a “hazard has no meaning except in human terms” (Lee, 1981, p7).

“Ordinary people form their own assessments of risk” (Lee, 1981, p6) and it is possible that the public’s perception of risk may be at variance with “the objective assessments made of the same risks by scientists” (Lee, 1981, p6). A study by Thomas (1981) “showed that the public does conceive risk issues in differentiated terms, taking into account several substantive dimensions of both risk and probable benefits. While such dimensions might well be specific to the risk issue in question, it does seem likely that both risks and probable benefits will form part of belief systems in most instances where risk acceptance, or otherwise, is an issue.” (Thomas, 1981, p35). The higher the perceived risk of a hazard, “the more people want to see its current risks reduced”, whereas “experts’ perceptions of risk are not closely related to any of the various risk characteristics” but are instead seen as being “synonymous with expected annual mortality” (Slovic, 1992, pl21). These differences in perception between ‘experts’ and the ‘general

public’ may result in many conflicts about risk and when this occurs “expert recitations of “risk statistics” will do little to change people’s attitudes and perceptions.” (Slovic, 1992, pl21)

Perceptions of risk will directly influence decision making processes, as observed by Wharton (1992) who stated that:

“Individuals, organizations and governments make decisions based on perceptions about the likely consequences of their actions. Some of the inevitable consequences may not be recognised, there may be gross misconceptions about the likelihood or magnitude of those that are recognised, and yet other perceived consequences may be more imagined than real. In short, there may not be much overlap between the set of real and the set of perceived

potential outcomes.” (Wharton, 1992, p5)

The property development process is an activity which will be affected by the perceptions of individuals, organisations and governments, about the likely consequences of their actions, and the outcome of those perceptions will directly influence the financial viability of a development project. Redevelopment of land which has been affected by contamination is likely to be extremely sensitive to variations in perception of risk and Mundy (1992a, pi 1) considered that perceived risk “is an individual’s disinclination to believe that a source of contamination is safe”. He went on to express the view that the perception of risk varies with the nature of the event’s cause and whether or not the source might result in a catastrophic accident.

“It is often claimed that people perceive a risk as less serious if they accept it voluntarily.” (Lee, 1981, p i2) Thus, the discovery of a previously unknown landfill found to be generating landfill gas, close to a housing development, is likely to be perceived as a serious risk. If, however, the same development is situated in a low lying flood plain, the perception of risk from flooding is likely to

be much lower than the risk from potentially explosive landfill gas. This is because the risks associated with flooding are voluntary whereas those associated with the landfill gas are involuntary.

“Another factor that is often thought to influence public perception is people’s degree of familiarity with a hazard.” (Lee, 1981, p 14) Mundy also expressed the view that “the level of risk associated with contamination varies according to the level of familiarity with the particular contamination” (Mundy, 1992a, p ll). Given this assumption, it may be that residents living in an area dominated by an aluminium smelter which had been in operation for almost one hundred years would be unlikely to have a very high perception of the risks associated with contamination caused by the smelter. Research by Kinnard et al (1995) found that this had in fact been the case, until such time as the existence of contaminated soil in the neighbourhood of the smelter became publicly known. This was followed by closure of the smelter, the commencement of legal action by the owners of the affected properties and commencement of the soil treatment operations, all of which produced ‘down-tums’ in property values.

The smelter was situated in Tacoma County, Washington, USA and in a study of property transactions covering an eighteen year period, spanning the closure of the smelter, Kinnard et al (1995) compared property values within the area immediately adjacent to the smelter (one and a half mile radius) with those in a control area more than two miles from the smelter. They found that there was no significant difference in values between the two areas, except following periods of high publicity, for example after initial discovery of the contamination,

commencement of the legal action and the “clean-up” operation. This was in spite of the fact that there was no change in the actual hazards or contamination over the study period, leading the researchers to conclude that, at least in the United States, “perceptions of potential buyers of residential properties about the character, extent and meaning of on-site soil contamination may not necessarily be informed and rational, but they are very real” (Kinnard et al, 1995, pi 1).

Slovic (1992, pi 18) reviewed several studies which had used questionnaires “to ask people directly about their perceptions of risks and benefits and their

expressed preferences1 for various kinds of risk/benefit tradeoffs”. This approach appealed to Slovic and his fellow researchers for several reasons, including the ability to elicit current preferences and to consider many aspects of risk besides financial considerations and/or the numbers of persons to whom actual harm had been occasioned. A questionnaire approach also enabled “data to be gathered for large numbers of activities and technologies, allowing for the use of statistical methods to disentangle multiple influences on the results” (Slovic, 1992, ppll8- 119).

A distinguishing feature of the work reviewed by Slovic (1992) was the use of a variety of psychometric scaling methods “to produce quantitative3 measures of perceived risk, perceived benefit, and the other aspects of perceptions” (Slovic,

1992, pi 19). Petts and Eduljee (1994) draw a number of generalisations, in respect of risk, from the psychometric literature:

• Perceived risk is greater for hazards whose adverse effects are considered to be involuntary, uncontrollable, unfamiliar, catastrophic, fatal, delayed and therefore

present a threat to future generations, generated by man, and not offset by direct (to the individual) compensating benefits.

• These characteristics of risks are highly correlated with one another. For example, risks that are regarded as voluntary are also regarded as controllable and understandable (e.g. driving a car). Conversely, risks regarded as involuntary are often also regarded as potentially catastrophic and a threat to future generations. • Experts tend to apply equal weight to consequences and probabilities, whereas the

public tend to put more weight on consequences. (Petts and Eduljee, 1994, p390)

In discussing the psychometric paradigm Slovic (1992) stated that the results are dependent upon the hazards studied, the questions asked about those hazards, the types of persons questioned and the data analysis methods. He acknowledged that the use of psychometric studies does have limitations but “the studies using this approach have invariably produced coherent and interesting results” (Slovic,

1992, pi 19).

One aspect of the psychometric work undertaken by Slovic and his co-workers was to examine the role of perceptions in respect of environmental hazards and to compare the responses of laypeople with those of experts. They observed that

“many of the qualitative risk characteristics that made up a hazard’s profile were highly correlated with each other, across a wide range of hazards. For example, hazards rated as ‘voluntary’ tended also to be rated as ‘controllable’ and ‘well- known’; hazards that appeared to threaten future generations tended also to be seen as having catastrophic potential, and so on.” (Slovic, 1992, pl21) As a result of this research they classified the risks into two groups of factors, Known or “Dread” Risks and Unknown Risks, which they represented spatially to show the respective influences of the two groups of risks, see Figure 3.1. Most important is the factor “Dread Risk” (Factor 1), shown on the horizontal scale, with the result that the higher the hazard’s score on this factor, the further to the right it will appear, reflecting the higher level of perceived risk. The Unknown Risks (Factor 2), those perceived to be less catastrophic and unlikely to

threaten future generations, are represented on the vertical scale and the nearer to the top a hazard’s score appears, the higher the perceived level of risk attaching to that hazard.

FIGURE 3.1