Academic journal article Environmental Law

The Effects of Land-Use Regulations on Property Values

Academic journal article Environmental Law

The Effects of Land-Use Regulations on Property Values

Article excerpt

Land-use regulations can affect property values in a variety of complex ways. In the context of laws like Oregon's Measure 37, requiring that landowners be compensated if regulations reduce property values, the economic effects of land use regulations on property values have been widely misinterpreted because two very different economic concepts are being confused and used interehangeably. The first concept is "the effect of a land use regulation on property values" which measures the change in value when a regulation is added to many parcels. The second concept is "the effect of an individual exemption, or variance, to an existing land use regulation," which measures the change in value when a regulation is removed from only one parcel.

The effect of a land-use regulation on property values can be positive or negative, whereas removing a land-use regulation from one property can be expected to have a positive effect. Indeed, many land-use regulations actually increase property values by creating positive "amenity effects" and "scarcity effects. "As a result of these differences, a positive estimate for removing a land-use regulation cannot be interpreted as proof that the other concept was negative. Despite this, a positive value for an individual exemption to a land-use regulation continues to be interpreted as proof that compensation is due under Oregon's Measure 37. Indeed, this mistaken interpretation may be partly responsible for public sentiment that land-use regulations tend to reduce property values.

I.     INTRODUCTION
II.    SCARCITY EFFECTS OF LAND-USE REGULATIONS
III.   AMENITY EFFECTS OF LAND-USE REGULATIONS
IV.    EMPIRICAL EVIDENCE OF SCARCITY AND AMENITY EFFECTS
V.     THE VALUE OF AN INDIVIDUAL EXEMPTION FROM LAND-USE REGULATIONS
VI.    DYNAMIC INTERACTIONS
VII.   WHEN LAND-USE REGULATIONS REDUCE PROPERTY VALUES
VIII.  SUMMARY AND CONCLUSIONS
IX.    APPENDIX: POTENTIAL MARKET EFFECTS OF LAND-USE REGULATIONS

I. INTRODUCTION

Land-use regulations can affect the market value of property in a variety of ways. Although some of the effects may be straightforward, in most cases they are complex and can easily be misunderstood or misinterpreted. In particular, it has been assumed that land-use regulations invariably reduce property values when, in fact, they often have positive effects.

The positive effect of a land-use regulation on property values can occur two ways. One way is an "amenity effect'--when land-use regulations protect, enhance, or create amenities or services that benefit property owners. Perhaps the most transparent example of this is the property tax: many communities use property taxes to finance public services like police and fire protection, public schools, and infrastructure such as roads and utilities. These public services help these communities prosper, and make them an attractive place to live, which in turn raises property values. (1)

Similar kinds of positive amenity effects arise with other kinds of land-use regulations such as regulations to protect environmental amenities, open space and farmland, or to control objectionable conditions such as noise, congestion, and pollution. (2) Like a property tax, these land-use regulations impose costs or restrictions on landowners' actions, but they also generate beneficial effects. Indeed, the motivation behind most land-use regulations is to protect or enhance amenities that contribute to a community's health, safety, and welfare.

The other way that land-use regulations can increase land values is through their "scarcity effects." (3) By increasing the scarcity of land available for a particular use in a particular location, the prices for those lands are bid up in the market. For example, a limit on the land available for development in one location is likely to increase the price of developed and developable lands. These effects can be very large, and they can have spillover effects on land prices in other locations. …

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