The Economic Value of Open Space (Land Lines Article)

Author(s): Fausold, Charles J. and Robert J. Lilieholm
Publication Date: September 1996

Inventory ID LLA960901; English

Article

Governments have long recognized the need to preserve certain open space lands because of their importance in producing public goods and services such as food, fiber, recreation and natural hazard mitigation, or because they possess important geological or biological features.

New impetus for open space preservation results from the desire to counteract the effects of declining urban cores, suburban sprawl, and the socioeconomic and land use changes now encroaching on high-amenity rural areas. The growing use of habitat conservation plans for reconciling environmental and economic objectives also draws attention to the values of open space, especially in comparison to alternative land uses.

It is likely that most decisions about open space preservation will be made at the local level, due in part to the general trend of devolution of governmental responsibility (with accompanying fiscal responsibility), as well as an increase in the institutional capacity and activism of local land conservation trusts. Since local governments are heavily dependent on the property tax for operating revenue, the fiscal and economic implications of open space preservation decisions are paramount. Conservationists are frequently called upon to demonstrate to local communities the economic value of preserving open space.

While much has been written about the economic value of the environment in general and of open space in particular, the literature is segregated by discipline or methodology. It is therefore difficult to assess the economic value of open space comprehensively. It is even more difficult to apply what is known in a public policy context, where open space holds significant non-monetary value.

Concepts of Value and Public Goods
Like all natural ecosystems, open space provides a variety of functions that satisfy human needs. However, attempting to assign monetary values to these functions presents several challenges. First, open space typically provides several functions simultaneously. Second, different types of value are measured by different methodologies and expressed in different units. Converting to a standard unit (such as dollars) involves subjective judgments and is not always feasible. Third, values are often not additive, and "double counting" is an ever-present problem. Finally, some would argue that it is morally wrong to try to value something that is by definition invaluable. At a minimum, they say, open space will always possess intangible values that are above and beyond any calculation of monetary values.

Open space often plays an important role in the provision of "public goods." Public goods are nonexcludable: once they are produced it is impossible or very costly to exclude anyone from using them. They are also nonconsumptive: one person's enjoyment of the good does not diminish its availability for others. The limited ability of producers to exclude potential users typically precludes the development of market allocation systems for public goods. As a result, easily observed measures of value, like those expressed through market prices, do not exist. Yet land use and resource management decisions imply tradeoffs between marketed and non-marketed goods and services, making it difficult to compare relative values and, through tradeoffs, arrive at socially optimal decisions.

Use and Nonuse Values
Much of the economic value associated with open space activities like recreation can be examined as use value and nonuse value. Use value results from current use of the resource, including consumptive uses (i.e., hunting and fishing), nonconsumptive uses (i.e., hiking, camping, boating and nature photography) and indirect uses (i.e., reading books or watching televised programs about wildlife).

Activities directly or indirectly associated with open space may provide an important source of revenue for businesses and state and local governments. For example, hunting and fishing license fees are a major source of funding for state wildlife agencies. Less direct but perhaps more important from an overall economic perspective are expenditures related to nonconsumptive open space activities that also have income and job multiplier effects and often occur in rural areas with limited commercial potential.

The economic implications of use and nonuse values across society can be very large, and many economists agree that these values should be considered in open space decisionmaking. Measuring use and nonuse values is difficult, however, due to the lack of markets and market prices and the existence of administratively set, quasi-market prices such as hunting and fishing license fees. To arrive at socially meaningful estimates of value for many nonmarket resources, economists use the concept of consumer surplus, or the amount above actual market price that a buyer would theoretically be willing to pay to enjoy a good or service.

Two methods are used to first estimate the demand curve for the resource: contingent valuation or travel cost methods. In the first, a hypothetical market is created in a survey and respondents are asked what they would be willing to pay for some defined activity or resource. In the second, the cost of travel to a site is viewed as an entry or admission price, and a demand curve is derived from observing visitation from various origins with different travel costs. While still controversial, these methods have been used in numerous studies to estimate the willingness to pay in addition to actual expenses for various recreational activities ( see chart 1), as well as for nonuse values such as maintaining populations of certain endangered species or preserving unique bird habitats.

Several types of nonuse values consider the possibility for future use. Option value represents an individual's willingness to pay to maintain the option of utilizing a resource in the future. Existence value represents an individual's willingness to pay to ensure that some resource exists, which may be motivated by the desire to bequest the resource to future generations.

Measuring the Economic Value of Open Space
As a result of decreased intergovernmental transfers of financial aid and increasing citizen resistance to taxes, local officials now scrutinize the fiscal consequences of land use decisions more than ever before. The primary analytic tool available to policymakers for this purpose is fiscal impact analysis, a formal comparison of the public costs and revenues associated with growth within a particular local governmental unit. Fiscal impact analysis is utilized frequently in large communities experiencing growth pressures on the metropolitan fringe, and it is being applied to open space preservation.

A review of fiscal impact studies by Robert Burchell and David Listokin concludes that generally residential development does not pay its own way. They found that nonresidential development does pay for itself, but is a magnet for residential development, and that open space falls at the break-even point. A study of eleven towns by the Southern New England Forest Consortium shows that on a strictly financial basis the cost of providing public services is more than twice as high for residential development as for commercial development or open space. (see chart 2)

Care must be taken when evaluating the results of fiscal impact analyses for several reasons: the choices of methodology and assumptions greatly influence the findings; specific circumstances vary quite widely from community to community; and fiscal impact analyses do not address secondary or long-term impacts. Nevertheless, fiscal impact analysis is a powerful and increasingly sophisticated planning tool for making decisions about land use alternatives at the community level.

The most direct measure of the economic value of open space is its real estate market value: the cash price that an informed and willing buyer pays an informed and willing seller in an open and competitive market. In rural areas, where highest and best use of land (i.e., most profitable use) is as open space, one can examine market transactions. In urban or urbanizing regions, however, where highest and best use (as determined by the market) has usually been development, the open space value of land must be separated from its development value, especially when land is placed under a conservation easement.

Open space may also affect the surrounding land market, creating an enhancement value. Casual observers find evidence of enhancement value in real estate advertisements that feature proximity to open space amenities, and it is explicitly recognized by federal income tax law governing the valuation of conservation easements. A number of empirical studies have shown that proximity to preserved open space enhances property values, particularly if the open space is not intensively developed for recreation purposes and if it is carefully integrated with the neighborhood. Enhancement value is important to the local property tax base because it offsets the effects of open space, which is usually tax-exempt or taxed at a low rate.

Open space possesses natural system value when it provides direct benefits to human society through such processes as ground water storage, climate moderation, flood control, storm damage prevention, and air and water pollution abatement. It is possible to assign a monetary value to such benefits by calculating the cost of the damages that would result if the benefits were not provided, or if public expenditures were required to build infrastructure to replace the functions of the natural systems.

An example of this approach is the Charles River Basin in Massachusetts, where 8,500 acres of wetlands were acquired and preserved as a natural valley storage area for flood control for a cost of $10 million. An alternative proposal to construct dams and levees to accomplish the same goal would have cost $100 million. In another study, the Minnesota Department of Natural Resources calculated that the cost of replacing the natural floodwater storage function of wetlands would be $300 per acre foot.

Lands valued for open space are seldom idle, but rather are part of a working landscape vital to the production of goods and services that are valued and exchanged in markets. Often, the production value resulting from these lands is direct and readily measured, as is the case in crops from farms and orchards, animal products from pasture and grazing lands, and wood products from forests. The economic returns from production accrue directly to the landowner and often determine current and future land use alternatives.

Open space lands may also play a less direct but nonetheless important production role for market-valued goods that depend in part on functions provided by private lands. Examples are the role of privately owned wetlands in fish and shellfish production and the role of private lands in supplying habitat for wild game. In addition to providing market-valued goods and services, direct and indirect production from open space lands supports jobs that are valuable to local, regional and national economies.

Conclusions
It will never be possible to calculate completely the economic value of open space, nor should it be. Certain intangible values lose significance when attempts are made to quantify them. Indeed, to incorporate into the real estate market the public values of open space without also developing a means of capturing those values for the public benefit would be counterproductive for conservation purposes.

Land use decisions ranging from the allocation of scarce conservation budgets to the property rights debate will be better informed if there is a more comprehensive understanding of the economic value of open space. Methods for determining and comparing value vary widely in level of sophistication and reliability. Some are based on long-established professional standards, while others continue to evolve. Given the inherent subjectivity of the term, any discussion of value must include a variety of disciplines, methodologies and approaches. The greatest benefit may be in prompting reassessment of the "conventional wisdom" about the economic consequences of development and conservation.

____________________
Charles J. Fausold is a fellow at the Lincoln Institute of Land Policy. Robert J. Lilieholm is an associate professor at Utah State University and a former visiting fellow at the Lincoln Institute. With partial support from the Boston Foundation Fund for the Preservation of Wildlife and Natural Areas they are reviewing and synthesizing existing information to develop a useful framework for considering the economic value of open space. For further information, email to cfausold@lincolninst.edu or rjl@cc.usu.edu.

FYI
Courses
Land Policy Forum on Vermont Interactive Television, September 21. (First of six monthly sessions at 12 locations around the state.)

Land Use In America: Reflections and Directions. November 20-21, Los Angeles, CA.

Municipal Open Space Acquisition: Preparing and Funding Successful Projects. January 30, Salt Lake City, UT.

Publications
Burchell and Listokin, "Land, Infrastructure, Housing Costs and Fiscal Impacts Associated with Growth: The Literature on the Impacts of Sprawl vs. Managed Growth," 1995. Working Paper. $7 plus shipping and handling.

Diamond and Noonan, Land Use in America, 1996. $26.95 plus shipping and handling.

Endicott, Land Conservation Through Public/Private Partnerships, 1993. $22.95 plus shipping and handling.

Faber, On Borrowed Land: Public Policies for Floodplains, 1996. Policy Focus Report. $14 plus shipping and handling.

Fausold and Lilieholm, "The Economic Value of Open Space," 1996. Working Paper. $7 plus shipping and handling.

Ingerson, Managing Land as Ecosystem and Economy, 1995. Policy Focus Report. $14 plus shipping and handling.

Lilieholm and Kelson, "Buffers and Natural Areas: A Review of Issues Related to Wilderness," 1996. Working Paper. $7 plus shipping and handling.