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CITY TREES AND PROPERTY VALUES

By Kathleen L. Wolf

Originally published in Arborist News, August 2007. This version contains all references and

citations.

Urban nature in all its forms—urban forests, parks, greenbelts—provides a range of benefits

and services to society, most of which are not readily bought and sold. Economists calculate

the “use value” of nature and ecosystems when tangible goods can be exchanged at market

prices, such as timber or fisheries products. “Non-use values” set up a more complex

economic puzzle. How can we estimate values for the many indirect, intangible services and

functions that urban nature provides, such as beauty, ecosystem services, and psychological

benefits?

The issue of valuation has become paramount in our society. What is not counted does not

count in today’s public arena. When markets do not exist for a resource in question then

efforts are made to derive monetary value

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. Natural settings, ranging from wildland to urban,

offer many beneficial life-support functions. Nonmarket valuation techniques arose from the

desire to represent the natural environment in the decision-making calculus

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within

communities.

This article serves two purposes. First, it will discuss the need for nonmarket valuations in

local decision making. Then it will introduce the technique called hedonic pricing, including

a summary of valuation studies over several decades.

VALUATION AND DECISIONS

Land ownership and improvements can be expensive in urban areas. If the values of

intangibles are not represented, hard costs become powerful disincentives to invest in natural

capital. Without some indicator of economic value, there is little financial incentive to

consider urban nature in land-use decisions, market transactions, and capital investment

budgets.

In the public sector, local leaders often make decisions about natural resources based on

cost–benefit analysis. Any public investment or policy proposal that incurs public costs or

affects private development brings forward advocates with evidence on how much market

value will be gained or lost. Those who favor conserving or creating nonproductive nature

are often at a disadvantage, as they cannot readily express the monetary gains or losses

arising from environmental changes.

The challenge is that city trees and open space are public goods.

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Consumption of a public

good by one individual does not reduce the amount of the good available for consumption by

others. Another key property of public goods is that they are nonexcludable. Any number of

people who walk under a splendid street tree will enjoy its shade and beauty immediately or

over the course of several decades, irrespective of who pays for the planting and maintenance

Wolf, City Trees and Property Values

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Arborist News, August 2007

of the tree. It is nearly impossible to exclude any nonpaying individuals from consuming the

good.

Government authorities have often invested in public goods that members of society accept

as providing value, such as education or emergency response systems. Having some way to

estimate the value of nature’s services helps local governments to weigh costs against returns

from development or prioritize payments for green versus gray infrastructure.

Nonmarket valuation is helpful in the private sector as well. The pursuit of profit is based on

estimates of costs and revenues. Nonmarket valuations offer the developer and land manager

information to estimate return on investment for land development projects. For instance,

there may be extra costs associated with taking greater care to protect trees during site

preparation, but those costs may be offset by higher purchase prices for the building lots.

HEDONIC PRICING METHOD

Although the value of nature to property owners and communities is rarely known in precise

dollars, its existence can be detected indirectly. Methods for nonmarket valuation include

travel cost method, deferred and replacement cost analysis, and contingent valuation

method.

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Hedonic pricing is a revealed willingness-to-pay technique. It attempts to capture the

proportion of property prices that are derived from the non-use value of trees and other

natural elements. It is a partial measure of value, obtained from indirect inferences about

spending and prices.

Hedonic pricing studies have been done since the 1960s. Most use least squares regression

analysis as the primary statistical tool. Property prices or assessments are regressed against

sets of control variables: environmental attributes of the house or property, other

neighborhood variables (such as the quality of local schools), and structural characteristics of

the house (such as number of bedrooms). One can then estimate how a change in a natural

feature, such as yard trees or proximity to a nearby park, is related to a change in property

value, holding other characteristics of the property constant. The advantage of this method

over others is its use of actual market transactions versus hypothetical questionnaires or

indirect assessments.

Urban areas are ideal for application of hedonic pricing because there is usually a wealth of

data available on house and property sales. Geographic databases enable analysis of value

increments based on proximity to natural features such as parks. Hedonic values can be

capitalized by local governments as increased property tax assessments or as excise taxes

paid on property sales.

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The calculated value across all properties influenced by a natural

feature can be aggregated, and the case may be made that the sum is adequate to pay for

annual debt and maintenance of the feature, such as street trees or greenspace.

Wolf, City Trees and Property Values

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Arborist News, August 2007