The Cost of Habitat Conservation
In collaboration with James Leiva and Sadia Majid
While economic growth is often the goal when designing cities, it must be weighed against the negative externalities that urban development imposes on natural and environmental resources. Successful cities must seek to find a proper balance if the goal is to provide sustainable solutions, even if it comes at the expense of foregone economic profit. Understanding how to make these decisions is a crucial element of designing communities where people can enjoy natural spaces.
As more and more natural habitat for endangered species and those not-yet-endangered are being destroyed by urban sprawl and new development, the government and its entities are working to protect the land and the natural habitats. One of the ways that this can be done is by restricting land use and development on current agricultural lands to prevent the spread of urbanization and the subsequent destruction of the habitats on the land. The goal of these initiatives is to proactively act to ensure that the land and its inhabitants are protected and preserved. However, these actions to protect the habitats don’t come without significant cost. Critics of these programs state that they are inefficient and not as effective as they should be: They believe that the cost for such environmental protection vastly outweighs the benefits and that they prevent natural growth and progress. Lovell and Sunding (2001) explore this idea and attempt to quantify the value of land that is encumbered with preexisting voluntary restrictions on development.
Lovell and Sunding (2001) seek to analyze how preexisting development restrictions affect the cost of protecting habitat through the creation and development of an econometric model and conceptual framework. The authors conduct their research using a case study of preserving vernal pools in Sacramento County, California though the restriction of development on agricultural land. Protecting endangered species and their habitats is an important duty for governments. To do this, restrictions often have to be made on the use of private land. Any restrictions set forth by the government or its entities on private property are often highly contested and questions are raised about the actual benefits compared to the real costs. It is estimated that 80 percent of endangered species have at least some part of their habitat on private land and then 50 percent of endangered species exist solely on private land (National Heritage Institute 1998.) It is often very difficult to try and measure the costs associated with restricting private land use in order to protect the environment and the habitats of endangered species. The differential property tax assessment of agricultural land has proven to make this analysis significantly more difficult and complex. A differential property tax assessment is a decrease in taxes that farmers and agricultural landowners must pay. The decrease in taxes comes from how the land is valued. With this program, the value of land is assessed using the agricultural-use value rather than the market value. The goal of these differential assessments is to lower operating expenses for farmers so that they have a better chance of staying in business. Lovell and Sunding (2001) try to develop a model and framework for how to estimate the cost to protect habitats on private land when the land is already encumbered with a voluntary agreement for a restriction on development.
Lovell and Sunding (2001) collected data using the Sacramento County Assessor’s Office to search for and compile data on agricultural parcels to analyze their assessed value, sale dates, prior enrollment with development restriction legislation, soil type, and other similar metrics. The date of sale for the parcels ranged from 1975 to 1999. U.S. Geological survey (USGS) topography maps and the assessor’s parcel maps were also used to better understand the actual locations and the characteristics of the land for each parcel. The location and information on the vernal pool habitats came from Sacramento County’s databases. For the study, 143 sites were chosen that represented 13,902 acres of the vernal pool habitat (California Department of Conservation 1992.)
The hedonic model was constructed to analyze the impact that preexisting voluntary development restrictions had on agricultural land values. The model looked at three categories: “Prohibit,” “Enrolled,” and “Nonenrolled,” and then included the individual variables of acreage, proximity to a roadway, water, soil quality, slope of the land, if it was in Sacramento, urban land, other land, and then Time and Time.2 The authors used this regression model as an attempt to predict what the cost of restrictions would be to protect the vernal pools. The model predicts the expected cost to the landowner by taking the expected market value of the land minus the value of the land with restricted use. The economic intuition behind the model is that the prior voluntarily encumbered land would be worth less than similar land without the development restrictions.
The results from the data of the hedonic regression show that the further away from the center of Sacramento, the lower the property values for all three variables (enrolled, nonenrolled, and restricted). This makes sense from a fundamental real estate and economics thought process. This principle can be explained by the Bid Rent Curve that dictates that the further away from the central business district or center of the city, the lower the value of a specific parcel of land. Differences in value began to become more evident as the model progressed through the data. For example, neighborhood effects were significant in all three variables but significant in different directions. Values for agricultural land nearby to urban areas were higher for the unrestricted land and lower for the encumbered land. This could be attributed to the potential for expansion of the urban area and the unrestricted agricultural land providing the best use, compared to the restricted land. When calculating the cost of the restrictions on the land, the paper first creates a scenario where all of the land in the study is restricted and then derestricted and open for development. The data suggests that if all of the land was restricted, the aggregate value would be $32.3 million and if it were unrestricted the aggregate value would be $75.6 million, a significant difference. On a per-acre basis, the average unrestricted land plot would be worth $4,390, whereas the average restricted land plot would trail drastically at only $361 per acre (Lovell and Sunding 2001).
Lovell and Sunding (2001) use their hedonic model to conclude that it is beneficial to protect the natural habitats even if it means incurring costs to do so. They conclude that to sustain and conserve the biodiversity and the endangered species, safeguarding the environment and rare ecosystems is essential and should be government and other entities’ first priority. Lovell and Sunding (2001) have justified their conclusion by showing that after analyzing the data from their case study on the vernal pools in Sacramento County, effective results were found. However, regulating or limiting the usage of private land does put a burden or enforces an extra charge on taxpayers and landowners. Thus, Lovell and Sunding (2001) attempt to establish a model to weigh the expenses of development restrictions on agriculture land with preexisting voluntary restriction. They intend to prove to the entities that the actual costs of protecting habitat or land are currently overestimated. Lovell and Sunding (2001) also imply that overlooking or disregarding these restrictions severely prejudices the economic expenses of environmental preservation on private land. Policy makers, thinking of different preservation alternatives, turn to practices such as conservation easements, the Williamson Act (the California Land Conservation Act of 1965), or others like urban planning and zoning. The Williamson Act protects land by preventing development or a change in use for agricultural land in exchange for property tax relief for the owners. The authors highlight the importance of evaluating the productivity or effectiveness of the environmental regulation when doing a cost–benefit analysis. Also emphasized is the importance of how knowing and understanding the real costs associated with such restrictions.
Lovell and Sunding (2001) examine the impact that preexisting land use restrictions have on the costs associated with protecting natural habitats in Sacramento County, California. In an article in the Missouri Law Review titled Differential Assessment and Other Techniques to Preserve Missouri’s Farmlands, Mark Lapping, Robert Bevins, and Paul Herbers analyze the viability of various actions and public policies to protect farmland in Missouri. While Lovell and Sunding (2001) predominantly focus on cost, Lapping, Bevins, and Herbers (1977) study the viability of differential assessment and other techniques such as: zoning, fee simple purchase and leaseback, development rights acquisition, transferable development rights, land trusts, and agricultural distracting have in protecting agricultural land. Lapping, Bevins, and Herbers (1977) find that the differential assessments are at their most useful when agricultural land is at a close proximity to new developments. Agricultural land far away from new development and areas of population growth did not see as much of an influence on land values from the differential assessment. This is attributed to the fact that most states, and Missouri specifically, generally assess agricultural land at a lower rate than nonagricultural land through use-value legislation. As a result, agricultural land that is a significant distance away from new development does not see such a drastic increase in land prices as that agricultural land in close proximity to new developments, minimizing the effects of having a differential assessment in place. The authors find that if the main goal of differential assessments and tax deferral is to influence land use, it is not a very successful method. They find that the costs associated with differential assessments often outweigh the benefits and when municipalities and states are considering implementing one of these programs, they often underestimate the actual costs (decrease in tax base) of such programs. As a suggestion for a solution, the authors state that comprehensive planning must first begin at a state level to identify specific areas of concern and then continue down to the local level with efficient planning and land use controls to protect specific at-risk land locations.
There are a few weaknesses present in Lovell and Sunding (2001); for instance, the main basis of their hypothesis is to understand and explain that the cost of exploiting habitats through new development is more detrimental than preserving them, is based on two incorrect biases. First, they assume that there are a limited and small number of land tracts that are encumbered by preexisting development restrictions, tending to make this a cheaper option for landowners. Second, the authors assume that the costs associated with protecting the land will automatically lower if a permanent or provisional restriction that ensures the prevention of converting agriculture land exists. However, these biases may not be applicable for every parcel of land or to land in other areas or locations with unique sets of attributes. This fails to show that the costs of such environmental protection are more beneficial than costly. Third, the results are based on a case study with monitored and controlled variables; potentially creating differing results and conclusions than what was found in this research by Lovell and Sunding. Thus, it does not seem like a viable option to use this model on a more widespread basis. Finally, the presence of the differential property tax assessments make calculating the costs associated with preservation and value of land much more complex and difficult, limiting the usefulness of the model. Therefore, this method may not seem desirable or useful by the government or other entities. Also as per Lovell and Sunding (2001), initially, it had been observed that policies like conservation easements and others similar that dictated private land use appeared to be a good option and was capable of producing positive results. However, as time has passed, the number and size of many land trusts has increased along with their in-alliance and influence with the government. This trend diminished the usefulness of such policies as certain groups were taking advantage of the situation. This is common in most cases when speaking about large national organization that receive substantial federal funding by leveraging their power to influence land use for their own profit maximization. Furthermore, having only been focused on the area of Sacramento County, this model may not function as desired in other geographic locations. Also, the effectiveness of the hedonic model could vary in the future when considering the potential legal, economic, and political climate and as this has not been thoroughly discussed in Lovell and Sunding (2001), the future viability of the model can be questioned.
A few suggestions to improve the future research for this topic could entail applying the hedonic model to different geographic regions that have conditions that are different from Sacramento County to assess if their theory still stands. They could apply this model to other areas with vernal pools other than Sacramento County to establish generalizability and determine how results differ across different counties using the hedonic model and method. Also, the authors could consider doing longitudinal studies in the same area to observe the effects over time and assess hedonic model’s effectiveness in the long run. Lovell and Sunding (2001) could also try to make their hedonic model more comprehensive, and easier to calculate by substituting elements such as differential property tax assessment with other common assessments. Ideally, improving the process of assessing the usefulness of government policies to estimate the costs of regulations and measuring and evaluating their efficiency.
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1. According to Lovell and Sunding (2001), which policy can government agencies use to ensure privately owned land jointly produces economic goods and environmental amenities?
a. Conservation easement
b. Prohibiting use of parcels
c. All of the above
d. None of the above
Explanation: The correct answer is (a): conservation easement. (b) is incorrect because according to Lovell and Sunding (2001) we can achieve environmental goals without restricting the use of parcels entirely with the help of environmental features. Thus, (c) is also incorrect. According to Lovell and Sunding (2001), privately owned land can simultaneously produce economic goods and environmental amenities. In such situations, the government needs to specify environmentally acceptable current and future uses of the property and to make sure that the landowner adheres to those uses. There are several alternative policies available to government agencies to control the use of private land. Conservation easements are an example of such a policy.
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2. According to Lovell and Sunding (2001), generally, environmental protection is assured by acquisition of private land. However, in case of vernal pools such an extreme strategy is not required because:
a. They are protected or commissioned by Sacramento County
b. Agricultural production and urban development do not cause any destruction in case of vernal pool
c. Mitigation protects them
d. Where they exist now, protection of vernal pools is compatible because of current land use at those locations
Explanation: The correct answer is (b): Agricultural production and urban development do not cause any destruction in the case of vernal pools. As per Lovell and Sunding (2001) usually environmental protection is assured by the outright acquisition of private land. Because the vernal pool is not located in this particular region, this strategy is not necessary. Instead the government can get a partial interest in the parcels where vernal pool occurs. Under the terms of such an agreement, the government would purchase from the landowner the right to alter land use in the future. A restriction on any future development would impact the market value of a property if the property has some realistic, alternative future use. The existence of such property tax incentive programs may have an empirically significant effect on the cost of development restrictions.
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3. According to Lovell and Sunding (2001), what factors should land values be influenced by?
a. Variables related to locational and geographic characteristics
b. The expected price appreciation
c. Those variables that determine a parcel’s profitability in agriculture and the profitability for future urban development
d. Those variables that determine the agricultural income
Explanation: The Answer is (c): Those variables that determine a parcel’s profitability in agriculture and the profitability for future urban development. In this paper, Lovell and Sunding (2001) clearly state that two types of factors, those that determine a parcel’s profitability in agriculture, and those that determine profitability for future urban development should influence land values. Soil quality, slope of the land, the presence of water, and the parcel’s size all affect agricultural income. The variables that influence future urban use, and thus the unrestricted value of a parcel, are the distance from urban centers, surrounding land uses, and access variables such as road frontage, slope of the land, and number of acres.
References
California Department of Conservation (1992), “Farmland Mapping and Monitoring Program. Sacramento County Important Farmland Map 1990,” California Department of Conservation: Sacramento, California.
Lapping, M., R. Bevins and P. Herbers (1977), “Differential Assessment and Other Techniques to Preserve Missouri’s Farmlands,” Missouri Law Review 42, 369–408.
Lovell, S. and D. Sunding (2001), “Voluntary Development Restrictions and the Cost of Habitat Conservation,” Real Estate Economics 29, 191–206.
Natural Heritage Institute (1998), “Optimizing Habitat Conservation Planning on Non-Federal Lands,” Natural Heritage Institute: San Francisco, CA.