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The Economics of Conservation Easements

Andrew J. Plantinga

May 2007, English

Environmental preservation—or more specifically conservation easements—is an area of public action that affects property values. According to Andrew J. Plantinga, by 2005 about 3.9 million acres of land in the United States were enrolled in five major federal conservation easement programs. In addition, in 2003 some 1,500 private land trusts held over 5 million acres of land under easements. Despite the growing importance of easements as a tool for land conservation, many questions about them remain unanswered. Foremost among these questions is how acquired (or donated) conservation easements affect property prices, the size of cities, and property tax revenues. In this paper, Plantinga reviews the existing empirical studies of the effects of conservation easements on property values. He also provides a static urban-spatial model to simulate welfare changes with respect to the size of conservation easements, using the ratio of property tax revenue to local service provision as an indicator. Plantinga examines three scenarios: (1) a city closed to immigration with fixed lot sizes; (2) a closed city with variable lot sizes; and (3) a city open to immigration with fixed lot sizes. Outcomes of the theoretical analysis are then compared with the findings of previous empirical studies.

Plantinga finds that under all three scenarios a conservation easement that curtails the supply of developable land in a city will increase land rents within the entire area (except the land with the easement). If the lot sizes are fixed, the city expands by exactly the size of the easement. When lot sizes are variable, higher land rents induce land users to substitute capital for land, leading to higher development densities. As a result, the city expands by less than the size of the easement. If the city is open to immigration, the change in its size will depend on how attractive the improved amenity level is to existing residents and newcomers. Thus, in this situation the potential impact of the easement on the size of the city is ambiguous.

The most interesting prediction of Plantinga’s model is the effects of a conservation easement on property taxes. Calibrating his model with stylized data, he finds that with fixed lot sizes the increase in property tax revenue will exceed additional public expenditures as long as the size of the easement is small (between 0 and 50 percent of the original city size). The rise in land rents will increase property tax collections from real estate in the entire city that outweigh the loss of property taxes on the land with the easement and any increase in public expenditures due to the expansion of the boundary. If the easement is large (over 50 percent of the city size), residents will be displaced and forced to live farther away from the center, thereby necessitating additional local expenditures to serve this population. When the displacement effect is combined with the fall in the property tax revenue, a large easement could reduce the ratio of property taxes to expenditures for the provision of local services. If lot sizes are not fixed, higher densities may slow the expansion of the city and thus lessen the increase in demand for public services.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2006 and is Chapter 5 of the book Land Policies and Their Outcomes.