It is well documented that London has lost over a third of its grassroots music venues since 2007. One of the reasons given for this phenomenon is that, in our current economic climate and planning framework, venues are market failures.

What that means is that the value of a venue in London simply isn’t comparable to that of the flats that could be built on its site. A venue worth £300,000 could be converted into 6 or 8 flats, each worth as much as the venue itself.

For a landowner in these circumstances, it is difficult to provide an economic argument to retain the venue (or art gallery, or rehearsal space, or comedy club, or…). And with our planning system prioritising housing over everything else, those flats are easy to develop, sell and profit from.

And yet, our councils, government and property developers all know that the cultural value of a grassroots music venue – or independent theatre, or cinema, or art gallery for that matter – can make an area desirable. One of the key reasons Hackney is one of London’s fastest growing boroughs is its night time offer.

We can take this argument further. What if a venue was as valuable to the landowner as the aforementioned flats? What if, when a venue was supported, those businesses and residences around it would benefit economically? Land value would increase; more traders would open.

To argue this case, over a few cups of coffee a colleague of mine and I dissected his venue in Dalston.  Here’s our take.

Running the numbers

This venue sees 234 people go through its doors each day, each spending an average of £10 per head on entry fees, alcohol and food. It’s open seven days a week, and has a capacity of 250.

Let’s argue that, of these people, 60 per cent live locally. Half of those walked or cycled, while the other half took public transport to get to and from this venue, at a cost of £2.30 each way. The other 40 per cent commuted from other parts of the city. Of these, we estimate that 80 per cent took the tube and 20 per cent took taxis at a cost of £15 per ride.

Let’s assume that one-third of these 234 people ate out, either before or after visiting this venue, each spending another £15 per head. On top of this, this venue contributes £64,000 each year in PAYE, alcohol duty, license costs and business rates to the exchequer. In addition, it pays £5,000 per month rent to the landowner, or £60,000 per year.

Using our iPhone calculators, we tallied up that his venue contributes £694,000 to the local economy each year, outside of its independent takings as a business. Include those, and the amount rises to £1.3m.

Furthermore, this venue employs 12 people at the London living wage. In total, this venue is worth, theoretically speaking, as much as £2m a year to the local and national economy.

And this is one venue. On Kingsland High Street in Dalston, there are half a dozen of these. Across Hackney, there are dozens.

Let’s compare this with the value of one flat in a local development in Dalston. A two-bed is retailing at £450,000, a price the developer will earn once. Council taxes and other fees on such a property, on average, add a further £2,500 to £4,000 to the local economy, not to mention another £4,000 to £6,000 in ancillary costs like utilities and other services.

The space this venue inhabits could accommodate perhaps four new properties, which would net a developer around £2m on the sales. That, though, is a one off return, not something that will be pumped into the economy year after year.

Our calculations are inevitably rough – but they merit further investigation. What they show is that the term “value” has different definitions, depending on the party doing the valuing. To a developer, building and then exiting a project is of more value that renting out equal space to a leaser to open a venue, regardless of art form.

But what if this venue, or all six on the High Street, closed? We would lose secondary and tertiary value: the service providers supporting the venue, its rate and PAYE bill, the value of the music (or art, or theatre) being incubated and of course, the space’s cultural value. What’s more, the saleability of the flats would be impacted, because there would be fewer things to do in Dalston.

And with business rates returning to councils now, it is in local authorities’ best interests to understand and capitalise on the economies businesses create, both inside and outside their doors.

So when we look at that value of our grassroots music venues, our nightclubs – our music incubators, as they should be referred to – let’s value them both culturally and economically. If we measure their value properly, they are worth their weight in pounds and pence.

Dr Shain Shapiro is the managing director of Sound Diplomacy, a consultancy specialising in music cities and market development.