Sharing the Burden of Water Supply Protection: Restricting Development Rights in Order to Protect Water Supplies Increases a Community's Property Values but Decreases the Value of Downzoned Properties

By Dehring, Carolyn A.; Depken, Craig A., II | Regulation, Spring 2010 | Go to article overview

Sharing the Burden of Water Supply Protection: Restricting Development Rights in Order to Protect Water Supplies Increases a Community's Property Values but Decreases the Value of Downzoned Properties


Dehring, Carolyn A., Depken, Craig A., II, Regulation


A sufficient supply of freshwater is critical to human survivability and biodiversity. Much of the recent decline in freshwater biodiversity and overall freshwater ecosystem health is attributable to land use change. Land use practices that influence freshwater include agriculture, forestry, mining, industrialization, and urbanization. While agriculture has historically been viewed as the land use practice most likely to adversely affect water quality, urban development is now seen as the greatest threat to freshwater ecosystems in certain parts of the United States.

The general effects of urban development on water quality and watershed health can be grouped into three primary areas: alteration of the hydrologic cycle, manipulation of the physical habitat, and contamination of the water chemistry. For example, urbanization influences the hydrological cycle by increasing impervious surface coverage such as roads, driveways, and rooftops. The impervious surfaces reduce water infiltration into the soil, increase surface flow, and alter flood patterns, causing potential damage to private property and endangering the local population. Urbanization can also alter water chemistry by increasing the prevalence of freshwater contaminants from landscaping, construction activity, and roads.

Watersheds are the source of freshwater ecosystems. A watershed is defined as the land area that drains water to a particular stream, river, or lake. It can be identified by tracing a line along the highest elevations between two areas on a map, often a ridge. When development in a watershed increases density and/or impervious surface volume, the health of the water supply can be adversely affected. This imposes a negative externality on those outside the watershed who rely on it for drinking water and other uses such as recreation, waste removal, electricity, and flood control. In the absence of regulation, it is often argued, development in the watershed will exceed the optimal level because the full social cost of each development project is not borne by the private developer or land owner.

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This article examines how watershed regulations that restrict the density of development are capitalized into land values. From the manner and extent of capitalization we can infer some information about costs and benefits of watershed regulation as perceived by land market participants. If land use regulations in a watershed contribute to cleaner water than in their absence and residents benefit from the continued provision of clean water then we would expect watershed regulations to correlate with higher land prices. On the other hand, restrictions on the density of development, and hence the ability to subdivide, would tend to decrease the value of land burdened by the regulation. We might generalize the effect of restricting development in a watershed as placing all the direct costs on owners of vacant land in protected watersheds, while providing benefits to those downstream of the protected area. Because any indirect costs incurred to develop, administer, and enforce development restrictions in the watershed are borne by all land owners, we expect the net effect of watershed regulation to vary according to where land is located.

We examine the effect of North Carolina's Water Supply Watershed Protection Act (WSWPA) regulation on vacant land prices in Buncombe County, NC. Development restrictions mandating minimum lot sizes of two acres in the Ivy River watershed were imposed in 1998, after an unsuccessful challenge to the constitutionality of the act and a short-lived effort to exempt Buncombe County's Ivy River watershed from the act. Buncombe County, in the heart of the mountains of western North Carolina, is part of southern Appalachia, where dramatic agricultural intensification during the first half of the twentieth century gave way to post-World War II economic transformations that resulted in a large-scale migration out of area. …

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