The John Curtin Hotel: How much is a good pub worth?

Posted March 17, 2022

SGS Economics and Planning How much is a good pub worth Choice analysis

The John Curtin Hotel on Lygon Street in Carlton is being sold to developers who will, most likely, demolish it to make way for apartments. While it isn’t contentious that the Melbourne metropolitan community needs more housing, the sale of The Curtin begs the question – are apartments really the highest and best use of this site? Would the gain in housing warrant the extinction of a storied pub which hosted the union gatherings, including the drinking feats of Bob Hawke, for generations?

To answer these questions, it’s important we understand where ‘value’ to the community comes from in both cases – the Curtin remaining a pub, and the Curtin being torn down for apartments.

When choosing to purchase land for a site, developers consider the revenue they can realise from the sale of dwellings, less any construction and management costs, and an acceptable profit margin. Any amount left over is what the developer should be willing to pay for the land on the site. Generally, this value is around 15 per cent to 20 per cent of the market price of the apartments.

Under current planning controls, the Curtin site could accommodate around 42 units. Depending on the pricing of the units, its value in the eyes of a developer could range from $4 million to $6 million.

As suggested above, this amount reflects the construction and management expenses that go into producing housing, such as outlays on design and planning compliance, construction, and project management. It does not include what economists call “externalities”. These are collateral costs suffered by parties not involved in the construction, selling, and buying of the housing. The permanent loss of heritage value upon knocking down The Curtin is one such externality.

Aside from the sinking feeling we all feel in our stomachs when we hear of another iconic venue being knocked down, how do we value this heritage and would developing apartments in place of The Curtin still be feasible if developers had to pay the community for its loss?

A few years ago, SGS Economics and Planning and Survey Engine administered a survey of Victorians to explore the dollar value we place on our heritage buildings, places, and artefacts. The survey used advanced market research techniques, including “choice modelling”.

Choice modelling avoids asking people directly what they would be prepared to pay to save a particular building like The Curtin. Instead, it presents participants with a menu of heritage assets, each featuring a different mix of attributes to do with age, condition, and significance and each coming with its own price tag – a notional one-off tax to save the building or place in question. The implied value that respondents as a group place on individual heritage attributes is then extracted using statistical analysis.

This choice model for heritage assets in Victoria predicts that adults living within three kilometres of The Curtin would, on average, be willing to pay a one-off tax of $138 to save the pub.

There are 97,000 adults living within three kilometres of The Curtin, putting the heritage value of the hotel at $13.4 million. This is an underestimate, as it does not factor in willingness to pay by people who live further away.

Now, if developers were forced to internalise this cost, that is, compensate Victorians for the loss of The Curtin, they would not find it feasible to build apartments at the site.

The highest and best use of The Curtin is not as a site for apartments but rather as a site where people can continue to gather and remember the famed legends of the great Curtin.

While knocking down The Curtin was always doomed to fail the pub test, it seems that it also fails the economic test.

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SGS Economics Planning Chathura Perera2
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