Price Effects UGB - Knaap

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The oard of Regents of the University of Wisconsin System

The Price Effects of Urban Growth Boundaries in Metropolitan Portland, OregonAuthor(s): Gerrit J. KnaapSource: Land Economics, Vol. 61, No. 1 (Feb., 1985), pp. 26-35Published by: University of Wisconsin Press

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2/11


3/11

Knaap:

Urban

Growth

Boundaries

tested

for the

price

effects

of

zoning

n

Fairfax

County, Virginia,

and

Boston,

Massachu-

setts.

In

Fairfax

County,

Peterson ound and

values nfluencedbydensityzoningand ound

the effects

of

densityzoning

nfluenced

y

dis-

tance

to the

urbancore.

In

Boston,

Peterson

found land values

affected

by

minimum-lot

zoning.

Jud

(1980),

in a

study

of the

effectsof

zoning

on land values in

Charlotte,

North

Carolina,

also found land

values

influenced

by

minimum-lot

zoning.

In

an

analysis

of

allowable-use

oning

in

Brooklin

Park,

Min-

nesota,

Gleeson

(1979)

found land

values

n-

fluenced

by

a

development

boundary

that

separatesurban and fromagriculturaland.

The evidence

regarding

allowable-usezon-

ing,

however,

is

mixed.

Maser, Riker,

and

Rosett

(1977)

found no

price

differentialbe-

tween

single-family

nd

multiple-family

and

in

Monroe

County,

New York.

In

sum,

mixed evidence has

surfacedre-

garding

he effects

of

currently

ffective and-

use

controls

on land values.

This

study pro-

vides

furthermixed

evidence

in

this

regard.

What's

more,

this

study

also

provides

mixed

evidence

concerning

the

timing

of

land-use

constraints-that

is,

boundaries hat

specify

future

land-use constraints

may

also

affect

land

values

and,hence,

land allocation.

A

PARTIAL

EQUILIBRIUM

MODEL

Suppose

there exist two

types

of

residen-

tial

land,

urbanand

nonurban,

where

the

dif-

ference

s

enforced

by

zoningregulations

nd

defined

by housing

density,

minimum-lot

size,

or some other

allowable-use

criteria.

Suppose urther hat as a resultof zoning,ur-

ban

rents,

Ru,

are

higher

valued than

nonur-

ban

rents,

Rn,

for some radial

distance rom

the

urbancore. For ease of

graphical

xposi-

tion,

urbanrents

are

assumed

o

decline lin-

early

with

distance, ,

and

nonurban ents

are

assumed

spatially

nvariantunder

permanent

zoning.

The

marketvalues of

urbanand non-

urban and

equal

the

present

value

of

theirre-

spective

rentalstreams.That

s,

P,(t)

=

R(t)

+

R(t)/(l

+r)'

+

*

* *

R(t)/(l

+

r)?

[Ib]

Figure

1

illustrates he behavior

of urban

andnonurban and

values

with

distance o

the

urbancore underthe

above

assumptions

nd

under the

assumption

hat

zoning designa-

tions are

permanent.

Urban land

is

higher

valued to distancet'.

Beyond

distance

',

all

land

commandsnonurban

and

values. This

occurs because

zoning

regulations

ypically

prohibit

nonurban and from

urban

use but

not

urban and fromnonurban

use.

Whenzoning designationsare not perma-

nent,

and nonurban and

may

become urban

land sometime

n

the

future,

the

values

of

ur-

ban and

nonurban and

remain

the

present

value

of

the

expected

rental

streams

but

with

certain

modifications:

Pn(t)

=

Rn

+

Rn/(l

+

r)

+

. . .

Rn/(l

+

r)x-

+

R,(t)/(l

+

r)x

...

Ru(t)/(l

+

r)?

[2a]

wherex

=

expected

date of

up-zoning;

P,(t)

=

Ru(t)

+

R,(t)/(l

+

r)I

+

...

R.(t)/(l

+

r)?

#0

0

)

o

a

0

O

__a

P= R + Rn/(l +r)

[la]

[2b]

Pu

t)

FIGURE1

LAND VALUES

WITH DISTANCE UNDER

PERMANENT

ZONING

27

+

Rn/(l

+

r)2+

..

Rn//(

r))

?

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4/11

Land

Economics

Figure

2

illustrates

the behavior of

urban

and nonurban land

values with

distance to

the

urban core under

these

assumptions.

The

value of nonurban land increases by the

present

value of the

incremental rent

received

following up-zoning

to urban

land and

inci-

dentally

becomes

spatially

variant.

That

is,

nonurban land values at t

0

[4a]

[4b]

In

sum,

the

model

above

describes

the ef-

fects of an

UGB-a

demarcation of

where

zoning

changes

and

future urban

develop-

ment

may

take

place-on

urban and

nonur-

ban land

values. As

the

model is

specified,

ur-

ban land may exist outside the UGB; urban

development

may

have

been

allowed in

the

past

where

additional

urban

development

is

28

P(t)

-

po(t)

=

o

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5/11

Knaap:

UrbanGrowth

Boundaries

t'

Distance(t)

FIGURE 3

LAND VALUESWITH

DISTANCE

ND AN

UGB

not

currentlypermitted.

The value of urban

landoutside

the

boundary,

f it

exists,

will not

diverge

from

the value

of

urban

and inside

the

boundary

xcept

due to

non-UGB

differ-

ences. That

s,

the valueof

land

currently

es-

ignated

or

urbanuse will

not be affected

by

a

boundary

that

identifies

land that

may

be-

come urbanin the future.2Nonurban and

values,

however,

will

diverge

at

the

UGB.

Zoning changes

to urban

use

are

expected

sooner inside

the UGB than

outside

the

UGB;

hence,

since

urban

and

values are as-

sumed

higher

than

nonurban land

values,

nonurban and

values

nsidethe

UGB will be

higher

han

nonurban and

values

outside

he

UGB.

METHODOLOGY

Hedonic

price

estimation s usedto

test the

model above. The hedonic

equation

may

be

expressed

as

follows:

PL

=

Bo

+

EPi1jE

12URBAN

+

p13(NONURBAN

*UGB)

+

P14(URBAN*UGB)

w;

where,

PL

=

the

market

price

per

acre

of

the

home-

site;

Ej= avector of extraneousvariables;

URBAN

=

a

dummy

variable

ndicating

on-

ing (urban

=

1);

NONURBAN

=

a

dummy

variable

ndicating

zoning (nonurban

=

1);

UGB

=

a

dummy

variable

ndicating

ocation

withrespect o the UGB (outside= 1);and,

w

=

a

stochastic

disturbance.

Similar

pecifications

ave

been

employedby

Peterson

(1974b)

and

Diamond

(1980)

and

permit

measurement f

the

effects

of

land-use

controlson

subsets

of

observations-in

this

case,

theeffect

of the

UGB

is

measured n

ur-

ban and nonurban

and

values.

Three

implications

f

the

suggested

model

can

be tested

using

the above

hedonic

equa-

tion.First,the effects of zoningcan be tested

by estimating

P2;

f

2

>

0,

then

urban

and s

higher

valued than

nonurban and.

Second,

13

provides

a

measureof

the

price

effects of

UGBs on nonurban

and

values;

f

P

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