Academic journal article Agricultural and Resource Economics Review

Capitalization of Open Spaces into Housing Values and the Residential Property Tax Revenue Impacts of Agricultural Easement Programs

Academic journal article Agricultural and Resource Economics Review

Capitalization of Open Spaces into Housing Values and the Residential Property Tax Revenue Impacts of Agricultural Easement Programs

Article excerpt

Using a unique spatial database, a hedonic model is developed to estimate the value to nearby residents of open space purchased through agricultural preservation programs in three Maryland counties. After correcting for endogeneity and spatial autocorrelation, the estimated coefficients are used to calculate the potential changes in housing values for a given change in neighborhood open space following an agricultural easement purchase. Then, using the current residential property tax for each parcel, the expected increase in county tax revenue is computed and this revenue is compared to the cost of preserving the lands.

Key Words: agricultural preservation, hedonic models, open space, spatial econometrics

The preservation of open space has become an important policy issue in the United States as conversion of land in forestry and agricultural uses into residential and commercial uses continues. From 1982 to 1992, approximately 6.2 million acres of agricultural land and 5.1 million acres of forest land were converted to urban and other developed uses in the United States (Vesterby et al., 1997). In the Washington, DC, metropolitan area, the rate at which land is being consumed exceeds the population growth rate by a factor of almost 2.5. If current trends continue, 800,000 additional acres of resource lands will be developed by 2030 in the greater Washington, DC, region (Chesapeake Bay Foundation, 2002).

Open space provides many potential public goods with aesthetic, recreation, and biodiversity values. It also offers associated ecosystem services such as flood control and water purification. Farmland preservation programs can help maintain a land base for the agricultural economy, provide the amenities of open space and rural character, slow suburban sprawl, provide critical wildlife habitat, and reduce pollution in areas where suburban development is occurring (Bromley and Hodge, 1990; Fischel, 1985; Gardner, 1977; McConnell, 1989; Wolfram, 1981).

Because the private land market does not recognize these public goods (i.e., there is a market failure), private and governmental entities have introduced a variety of mechanisms to preserve open space or slow its conversion, including cluster and exclusive agricultural zoning, purchase of and transfer of development rights programs (PDRs and TDRs), use of agricultural easements, and the outright purchase of open spaces for parks using tax dollars or private donations. The general public demonstrated its support for open space preservation by passing over three-quarters of the ballot initiatives generating funds for this purpose: in 2000, $7.4 billion in conservation funding was authorized; in 1999, $1.8 billion; and in 1998, $8.3 billion (Land Trust Alliance).

Yet, even with this additional funding, there may still be insufficient funds to preserve enough open space. Thus, policy makers need further information on the potential benefits and costs of open space preservation. Also, while private purchases of open space do occur, as many environmental organizations and individual landowners purchase land, governments are likely to remain involved with the purchase of open space. Policy makers need to determine which tract to preserve and which financing mechanisms to use to purchase the land or its development rights. As previously noted, many of the ballot initiatives concerning open space have passed, providing funding for open space acquisition. However, alternative funding mechanisms may be needed if raising taxes through bond initiatives becomes more difficult.

The potential benefits of preserving open space accrue to the general public living throughout a region. However, the landowners near the preserved parcels might also receive direct benefits. These neighboring parcels could receive a positive externality from the open space, and some of this benefit may be capitalized into the price of the houses.1 If this increase in housing value exists, some of it could be recaptured through property taxes and generate an additional source of financing for open space provision. …

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