A LULU of a Case: Gauging Property Value Impacts in Rural Areas

By Delacy, P. Barton | Real Estate Issues, Fall 2004 | Go to article overview

A LULU of a Case: Gauging Property Value Impacts in Rural Areas


Delacy, P. Barton, Real Estate Issues


THE DAYS WHEN WELL-INTENDED CIVIC LEADERS could develop and build necessary infrastructure without some type of regulatory review are long gone. One person's irrigation project is another's nuclear waste dump. In undeveloped rural areas, it seems a road cannot be widened without triggering an Environmental Impact Statement ("EIS").

Measuring and commenting on environmental impacts has long been the domain of civil engineers and scientists. However, today, the siting of any such locally undesirable land use, sometimes referred to as a LULU, may require expert comment on potential property value impacts.

The LULU is one of those serendipitous acronyms destined to join the vocabulary for land use disputes. This lexicon already includes NIMBY ("Not in My Back Yard") and the lesser-known BANANA ("Build Absolutely Nothing Anywhere Near Anything").

In many respects the expert is simply being asked to apply a before and after valuation theory to affected properties. However, the scope of alleged impact can be vast while the body of relevant observable market transactions non-existent. This lack of market data is most acute in rural areas where environmental concerns about encroaching infrastructure are strongest.

A partial list of LULUs could include any of the following: prisons, landfills, aggregate mines, power plants, power transmission corridors (including structures), Superfund toxic waste clean-up sites.

The first thing an expert must do is identify the type of impact the LULU might create. A short list of generally undesirable externalities might include noise, traffic, air or water emissions, or simply the visual impact of a manmade structure into a pristine countryside. Yet another concern today could be the risk that a power plant or even a substation could attract terrorist activities.

Second, consider timing and duration. When will the siting occur? Is the impact a one-time event, perhaps confined to the construction activity, or will there be a sustained operation, continuing indefinitely?

Third, how broad will the effect be? Directly impacted properties may simply be acquired at market value from willing sellers or condemned outright through eminent domain. But what about nearby properties? How far can an effect be expected to extend?

Finally, is it appropriate to consider whether benefits or incidental amenities can offset a nuisance? A new prison may supply needed employment and accompanying economic development to a depressed rural community, yet does that benefit outweigh the perceived stigma and attendant risk associated with a penitentiary?

The criteria for approval in the EIS process, or similar land use forums, looks at impacts in the aggregate, as opposed to effects on specific properties. Without question impacts can vary from parcel to parcel. Yet at what point does personal preference or the peculiar characteristics of a given site constitute evidence of a general, rather than a specific adverse impact?

Case studies in urban areas have established that stigma, noise, and even toxic emissions do not influence property values much beyond a two-mile radius. Further, the impacts diminish significantly with distance from the LULU. The adverse impact of structures on rural vistas is similarly limited, and diminishes with distance. In the final analysis, experts can use these studies with the same care that they apply more localized market data. (1)

Much depends on the facts of the situation and good judgment from the fence line.

LITERATURE REVIEWED

Real estate appraisers, social scientists, environmental engineers and lawyers have long debated the question of measuring and evaluating the likelihood of negative property value impacts from adverse land uses or events. Often money damages are at issue if such diminution in value can be proven for a specific property, but what about in the aggregate? …

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