The Impact Of Parks And Open Spaces On Property Values

By John L. Crompton
Department of Recreation, Park and Tourism Sciences
Texas A&M University

Winter 2007


Volume 63, No. 1
Page 32

 

Communities are often confronted with the difficult decision of land use development. Often the assumption is that developing the land for residential homes offers more revenue to the community then developing parks and open spaces. Several factors show that this assumption is in error. The evidence shows that preserving open space can be a less expensive alternative to development.

Formulating The Proximate Principle

The proximate principle states that the market value of properties located proximate to a park or open space (POS) are frequently higher than comparable properties located elsewhere. The higher value of these properties means that their owners pay higher property taxes. The increment of those taxes that is attributable to the POS may be used to retire bonds issued to acquire, develop or renovate it. In some cases, the increment is sufficient to fully meet these debt charges. The principle is illustrated in Exhibit 1 (Click here).

Exhibit 1 shows a hypothetical 50-acre park situated in a suburban community surrounded by townhouses. It is a natural resource-oriented park with some appealing topography and vegetation. The cost of acquiring and developing it (fencing, trails, supplementary planting, some landscaping) is $20,000 an acre, so the total capital cost is $1 million. The annual debt charges for a 20-year general obligation bond on $1 million at 5% are approximately $90,000.

In Exhibit 1 the annual income stream attributable to the presence of the park that would be available to service the bond debt is developed. It shows the annual incremental property tax payments from the premiums attributable to the presence of the park amount to $196,000, which far exceeds the amount needed to pay the annual debt charges.

In the formative years of the development of urban parks from the 1850s through the 1930s, many elected officials who authorized these investments of public resources did so with the belief that such investments paid for themselves. Initially, this was based on the observation that people frequently were willing to pay a larger amount for a home located close to a POS. This recognition was bolstered by empirical evidence provided in the early annual reports published by the Central Park Commissioners in New York City of the change in land values that occurred when the park was constructed. They reported in 1873 that after paying the annual debt charge of $830,000 for the acquisition and development of Central Park, the city of New York received a net profit of $4.4 million from the increments in tax revenues attributable to the park. These remarkable results were confirmed and reinforced by other anecdotal and empirical evidence in these early years.

Central Park was developed by Frederick Law Olmsted and the Olmsted firm subsequently designed 3,000 parks over the next 90 years so its influence was widespread. The firm’s advocacy of the proximate principle was consistent and pervasive. Thus, in 1868, writing to the future developers of Riverside, Chicago, Olmsted spoke of the “vast increase in value of eligible sites for dwellings near public parks” (Miller 2001). Over 50 years later in 1919 his son Frederick Law Olmsted, Jr. continued to espouse the mantra, “It has been fully established that…a local park of suitable size, location and character, and of which the proper public maintenance is reasonably assured, adds more to the value of the remaining land in the residential area which it serves than the value of the land withdrawn to create it” (Olmsted 1919).

In a 1913 article published in Landscape Architecture entitled “Some examples of the influence of public parks in increasing city land values,” a Harvard professor provided multiple illustrations of cities and park commissions using the proximate principle to justify their investments in urban parks some of which are reported in Exhibit 2 (Nolen 1909, click here). Thus, throughout the 1850s – 1930s time period there was an insistent almost inviolate conviction not only among park and open space advocates, but also among planners and elected officials, of the legitimacy of the proximate principle.

However, the rudimentary studies that provided the empirical evidence verifying the principle were naïve, reflecting the underdeveloped nature of the statistical tools and research designs available in that era. The evidence was limited to simple calculations of increased tax receipts accruing from properties in proximity to parks. This ignored the array of other factors that could have influenced property values in addition to parks.

Contemporary Evidence

Between the 1930s and 1970s the proximate principle virtually disappeared from mainstream discussions of parks and open space, in part because of skepticism stemming from an awareness of the naiveté of the early studies that purported to verify the principle. Its resurrection in the last two decades has been coincident with the increased capability of computing which made feasible more complex analyses enabling the economic contributions of parks/open space to property values to be quantitatively identified and distinguished from those attributable to other possible contributions.

Approximately 20 studies investigating the issue have appeared in the past two or three decades. Most of the results have been published in peer-reviewed journals, which suggest they meet the standards of good social science research. They overwhelmingly verified the legitimacy of the proximate principle. A study of the effect of greenbelts on property values in three different areas of Boulder, Colorado showed that there was a $4.20 decrease in the price of residential property for every foot one moved away from the greenbelt. This suggested that if other variables were held constant, the average value of properties adjacent to the greenbelt was 32% higher than those located 3,200 walking feet away (Correll, Lillydahl and Stingell, 1978). A detailed review of all of them is available elsewhere (Crompton 2004).

They demonstrated that the proximate effect is substantial up to 500-600 feet (typically three blocks). In the case of community sized parks over (say) 30 acres, the effect may be measurable out to 1500 feet, but 75% of the premium value generally occurs within the 500-600 foot zone. The studies suggested that a positive impact of 20% on property values abutting or fronting a passive park area is a reasonable point of departure for estimating the magnitude of the impact of parks on property values. A series of studies done in New York City reported similar positive impacts emerged when substantial capital investment was made in renovating existing parks, which had deteriorated (Ernst & Young 2003).

The evidence shows that the type of park also influences the premium with passive parks generating the greatest premium, while properties adjacent to an active park may decline in value. In addition to the noise, congestion, et al. emanating from active use parks, other conditions which negated any positive impact included:

  • poorly maintained parks;
  • lack of visibility from nearby streets which provide better opportunities for anti-social behavior; and
  • properties backing onto linear parks whose privacy was compromised.

Like all other goods, the premiums that people are prepared to pay to be proximate to a park or open space is influenced by the available supply. If such amenities are relatively abundant, then the premiums will likely be relatively small or non-existent. Thus, in rural areas where there is plentiful open space the incentive to pay a premium to be close to a park is likely to be lower than in densely populated urban areas where open space is rare. Similarly, if homes in an area have large private yards, then it is likely that premiums will be lower than in areas with little private space because privately owned yard space may act as a partial substitute for public park space.

Three additional points are worth noting:

  1. If state or federal grants are available to pay for part of a park’s construction and development, then the probability increases of the revenue stream from the incremental increases in taxes covering the local community’s capital investment in the park.
  2. Incremental property tax income attributable to a park continues to accrue to a community after the debt charges are repaid, at which time the net return to the community will be substantially greater.
  3. The proximate principle only captures the “private” benefits that accrue to proximate homeowners. It does not capture the economic value of:
    a. “public” benefits that are received by the whole community such as reduced soil erosion, wildlife habitat enhancement, and improved water quality; or
    b. users of the park who live outside the proximate area whose home prices are, therefore, not influenced by the park.

The Golf Couse Analogy

Ipso facto evidence of the proximate principle is offered by the approximately 1,000 residential golf communities that have been developed in the US in the last decade (Mulvihill et al. 2001). Design and construction of an 18-hole golf course is likely to cost between $3 million and $8 million, but in addition a developer’s investment includes lost revenues from lots that could have been sold on the 150-200 acres of land used for the golf course. If the average density of the development is three lots per acre, this means that the developer foregoes the revenue from 450-600 lots which at (say) $40,000 each amounts to between $18 million and $24 million. Thus, the developer’s total investment may be on the range of $20 - $30 million.

Typically, in golf course communities, approximately 30% of households contain a member who plays golf on the course (Nicholls and Crompton 2005a). There may be many reasons accounting for why the other 70% purchase homes there, but a primary factor is likely to be the greenspace, ambiance and aesthetic appeal the extensive green area of the course offers. Since developers are profit oriented, it is clear that premiums generated from properties in the subdivision exceed the cost of their substantial investment in open space. In this respect, the private market place offers further validation of the legitimacy of the proximate principle.

The Role of Park And Open Space Lands In Reducing Taxes

The empirical evidence overwhelmingly supports the proximate principle. However, in urban/suburban contexts where land is in relatively short supply, the question may not be whether to invest in parks and open space per se, but rather whether such an investment is likely to yield a better return than if the land were to be used for development.

The conventional wisdom among many decision-makers and taxpayers is that development is the “highest and best use” of vacant land for increasing municipal revenues. The belief is that development increases the tax base and thereby lowers each individual’s property tax payments. Hence, larger property tax revenues are likely to accrue to communities if land was built-out with homes, rather than being used as parks or open space.

In most situations, this conventional wisdom is erroneous. When open space is transformed into homes, the taxes of existing residents invariably increase because while the development generates tax revenue, the cost of providing public services and infrastructure to that development is likely to exceed the tax revenue emanating from it. This conclusion emerges from a review of a cost of community studies reported by over 50 different research teams in 21 different states (Crompton 2004).

A summary of these results is shown in Exhibit 3. It shows the median cost among almost 100 studies of per dollar of revenue raised to provide public services to each of three different land uses. Thus, for every $1 million in tax revenues these communities received from farm/forest/open space uses and from industrial/commercial uses, the median amount they had to expend was only $350,000 and $270,000, respectively, to provide them with public services. In contrast, for every $1 million received in revenues from residential developments, the median amount the communities had to expend to service them was $1,160,000. The results of these studies indicate that favoring residential development at the expense of open land does not alleviate the financial problems of communities. Indeed, it is likely to exacerbate them.

The evidence clearly indicates that preserving open space can be a less expensive alternative to development. Hence, a number of communities have elected to purchase park and open space land, rather than allow it to be used for residential development, because this reduces the net tax deficit for their residents, which would occur if new homes were built on that land (Exhibit 4 Click Here). The conclusion is that a strategy of conserving parks and open space is not contrary to a community’s economic health, but rather it is an integral part of it.

References

Correll, Mark R., Lillydahl, J., Jane H. and Singell, Larry D. (1978). The effect of green belts on residential property values: Some findings on the political economy of open space. Land Economics 54(2), 207-217.

Crompton, John L. (2004). The proximate principle: The impact of parks, open space and waterfeatures on residential property values and the property tax base. Ashburn, Virginia: National Recreation and Park Association.

Ernest & Young (2003). Analysis of secondary economic impacts of New York city parks. New York City: New Yorkers for Parks.

Lutzenhiser, Margot and Netusil Noelwahr (2001). The effect of open spaces on a home’s sale price. Contemporary Economic Policy 19(3), 291-298.

Miller, Andrew R. (2001). Valuing open space: Land economics and neighborhood parks. Cambridge, MA: Massachusetts Institute of Technology Center for Real Estate.

Mulvihill, David A., et al. (2001). Golf course development in residential communities. Washington, DC: ULI-The Urban Land Institute.

Nicholls, Sarah and Crompton, John L. (2005a). Why do people choose to live in golf course communities? Journal of Park and Recreation Administration 23(1), 37-52.

Nicholls, Sarah and Crompton, John L. (2005b). The impact of greenways on property values: Evidence from Austin, Texas. Journal of Leisure Research 37(3), 321-341.

Nolen, John (1913). Some examples of the influence of public parks in increasing city land values. Landscape Architecture 3(4), 166-175.

Olmsted, Frederick Law, Jr. (1919). Planned residential subdivisions. Proceedings of the Eleventh National Conference on City Planning. Harvard University Press: 14-15