By: Kathleen L. Wolf, Ph.D.
June 25, 2010
cite: Wolf, K.L. 2010. Community Economics - A Literature Review. In: Green Cities: Good Health (www.greenhealth.washington.edu). College of the Environment, University of Washington.
Trees in cities are not grown and managed for products that can be bought and sold on markets, but they do provide many intangible services and functions! This article serves two purposes. First, it introduces valuation methods that are used to convert intangible benefits to dollar sums.1,2 Then, it shows how nonmarket valuations can support local decision-making.
Urban nature in all its forms — urban forests, parks, and greenbelts — provides a range of benefits and services to society, most of which are not readily bought and sold. Economists calculate the “use value” of nature and ecosystems when tangible goods can be exchanged at market prices, such as timber or fisheries products. “Non-use values” present a more complex economic puzzle. How can we estimate values for the many indirect, intangible services and functions that urban nature provides, such as beauty, green infrastructure functions, and psychological benefits?
A reliance on monetary valuation has become central in our society: what is not counted does not count in today’s public arena. When markets do not exist for a specific resource, efforts are made to define it in terms of monetary value.3 Natural settings, including those in cities, offer many beneficial life-support functions. Nonmarket valuation methods arose from the desire to represent the natural environment in the decision-making calculus within communities.4
Across many studies of visual preference, people judge scenes that include natural elements to be of higher visual quality than those that show only built features. Yet aesthetic response is more than a simple reaction to what is beautiful or pleasant; it is an expression of a complex array of perceptual and cognitive processes that drive behavior.5 Aesthetic responses do have economic consequences; for instance, firms and talented workers they hire are attracted to places that have high numbers of amenities and high quality natural environments.6
In addition to these perceptual findings studies have calculated specific economic values for trees and nature in the city. While the value of nature to property owners and communities is rarely expressed in precise dollars, it can be determined indirectly. Methods for nonmarket valuation include travel cost method, deferred and replacement cost analysis, and contingent valuation assessment.7 Below are some of the results.
Most valuation studies have focused on factors that contribute to residential property valuation. Hedonic pricing, a revealed willingness-to-pay assessment, is the most commonly used economic valuation method for this purpose. It is used to capture the proportion of property prices that are derived from the non-use value of trees and other natural elements. Hedonic pricing represents a partial measure of value, obtained from indirect inferences about spending and prices.
Hedonic pricing studies have been done since the 1960s. Most use regression analysis as the statistical tool. Property prices or assessments are regressed against sets of control variables: environmental attributes of the house or property, other neighborhood variables (such as the quality of local schools), and structural characteristics of the house (such as number of bedrooms). With these objective factors identified, one can then estimate how a change in a natural feature, such as yard trees or proximity to a nearby park, relates to a change in property value, holding other characteristics of the property constant. The advantage of this method over others is its use of actual market transactions versus hypothetical questionnaires or indirect assessments.
Urban areas are ideal for application of hedonic pricing because there is usually a wealth of data available on house and property sales. Geographic databases also enable analysis of value increments based on proximity to natural features such as parks. There have also been polls of appraisers’ judgments of property valuations and surveys of homebuyers’ opinions yielding data for calculating economic value. The remainder of this section emphasizes studies using statistical analysis of market sales or appraisals.
Studies relating the presence of trees to residential property values have evaluated a range of urban forest and landscape conditions on single-family homes. Although there have been a few exceptions, properties with trees are generally preferred to comparable properties without trees, with the trend across studies being a price increase of about 7%. Street trees appear to add value even to adjacent properties, up to 100 feet away in one study.9 Here are results from a selection of studies:
|2%||mature yard trees (greater than 9-inch dbh)8|
|3%||larger street trees9|
|3-5%||trees in front yard landscaping10|
|6-9%||good tree cover in a neighborhood11|
|10-15%||mature trees in high-income neighborhoods12|
Price effect is variable and depends on how tree presence is defined. In addition, the socioeconomic condition of a residential area also has an effect on pricing. For instance, greater increments of value are seen for tree planting and landscape improvements in lower-quality neighborhoods.11,13
Most hedonic valuation studies have focused on residential properties. But the approach can be used to assess other land uses as well. For instance, a study in Ohio found that rental rates for commercial offices having a high quality landscape were 7% higher that other, similar properties without such landscaping.14
Many communities have codes or ordinances that regulate tree preservation on residential development sites. Site developers may argue that tree protection costs are prohibitive. Understanding potential market values in different forest conditions is an important step in understanding the economics of urban forest protection.15 Market price studies of treed versus untreed lots show a range of value enhancements:
|18%||building lots with substantial mature tree cover16|
|22%||tree-covered undeveloped acreage17|
|19-35%||lots bordering suburban wooded preserves18|
|37%||open land that is two-thirds wooded19|
Generally, trees and forest cover in development growth areas add value to parcels. One study found that development costs were 5.5% greater for lots where trees were conserved.20 Given increased lot and home valuations, builders have reported that they were able to recover the extra costs of preserving trees through a higher sales price for a house, and that homes on wooded lots sell sooner than homes on unwooded lots.21
More than 30 studies have shown that people are willing to pay more for a property located close to an urban open space than for a house that does not offer this amenity, a finding known as the “proximate principle.”22 The studies evaluate the effects of parks and open spaces that usually contain trees and forests.
|10%||inner city home located within 1/4 mile of a park13|
|10%||house 2 to 3 blocks from a heavily used, active recreation park22|
|17%||home near cleaned-up vacant lot13|
|20%||home adjacent to or fronting a passive park area22|
|32%||residential development adjacent to greenbelts23|
With few exceptions,24,25 studies find that homes adjacent to naturalistic parks and open spaces are typically valued at about 8% to 20% higher than comparable properties.26 Values show a linear decline with distance from the edge of an open space, with a positive price effect declining to near zero at about 1/2 mile away.27,28,29 Other factors affecting property values include usage rate (more park users = lower property values), user activity (athletic fields and games = lower property values up to 500 feet away), and care and upkeep (lower maintenance = lower property values). For instance, the values of properties close to heavily used or unkept parks are typically lower than similar properties farther away.
Another method of valuing forests has been to analyze improvements in visual quality provided by trees or forest cover. Forest proximity may indicate recreational value, while tree cover on a residential lot can incorporate benefits such as noise reduction and lower energy use. Views are largely tied to aesthetic qualities and have been studied to a limited degree.
|4.9%||multifamily unit with view of forested open space28|
|8%||house with a park view24|
Hedonic values can be captured by local governments as increased property tax assessments or as excise taxes paid on property sales.22 The calculated value across all properties influenced by a natural feature can be aggregated. For instance, a study in Portland, Oregon, found that street trees add $8,870 to the sales price of a home, and applying the average tree effect to all houses in Portland yields a total value increase of $1.35 billion, potentially yielding increased annual property tax revenues of $15.3 million across the city.9 The case can be made that these revenues can be applied to the annual debt and to management costs of an urban forest or parks program, further supporting home values.
Retail and commercial business owners are often influential people in communities; public expressions of their attitudes can affect political support for urban forestry. For example, merchants may overlook the indirect and long-term benefits of a quality urban forest and instead focus on near-term direct costs (such as pruning and debris clean up). Such attitudes can set the tone for program and budget decisions in local government.
Valuation studies using contingent valuation indicate the potential returns from tree investment on nonresidential settings. The contingent valuation method (CVM) is used to estimate economic values for all types of ecosystem and environmental services. It can be used to estimate both use and non-use values. CVM involves directly asking people, in a survey, how much they would be willing to pay for specific environmental services. The method is called “contingent” valuation because people are asked to state their willingness to pay more, contingent on a specific hypothetical scenario and description of the environmental condition or service.
A series of studies has used CVM to explore how shoppers respond to the urban forest across different business settings. Scenarios are presented to study participants in images and drawings, generally comparing a place with a high quality urban forest canopy to a similar place that is kept up well but contains no trees. Survey participants are then asked what they would be willing to pay for a set of goods and services in each, and their responses are statistically compared. Generally, shoppers are willing to spend more when shopping in pleasing natural settings.
|9%||goods and services in forested business districts in small cities30|
|11-12%||goods and services in forested business districts in large cities31|
|9%||goods and services in landscaped strip malls32|
|7-11%||goods and services in retail districts adjacent to vegetated freeway rights-of-way33|
|23%||homes within 1/4 mile of "excellent" commercial corridors13|
The studies tested for other responses, and these measures suggest why shoppers may be willing to pay more for goods and services in business settings that contain high quality trees and landscapes.
Visual quality describes settings that people find pleasing and desirable. Through a series of surveys, people have been asked to rate how much they like each scene in of a collection of images. Ratings were summarized and compared. Across all studies, consumer ratings increased steadily in proportion to the presence of trees. Visual preference scores were lower for scenes without trees and much higher for places with trees. Business districts with tidy sidewalks and well-designed buildings, but no trees were rated at the low end of the scores. Images containing well-tended, large trees received the highest ratings, particularly when large trees formed an orderly canopy over the sidewalk and street.
People form mental impressions of and associations with places, new or familiar. In one set of studies, people were asked to rate their level of agreement with a series of statements about a variety of retail places. Again, trees were associated with higher ratings of amenity and visual quality across the studies. Moving beyond the obvious visual content, the respondents made inferences about the settings. Positive scores for maintenance were given to districts with trees, despite cues indicating the same level of building care and street tidiness in areas without trees. Judgments of products and merchants were more positive in forested places, as were inferences regarding product value, product quality, and merchant responsiveness.
A consumer’s expectations regarding shopping experiences begin at the curb, long before entering a store. Features such as storefronts and sidewalk character can create favorable or negative impressions that subconsciously affect shopper behaviors. It appears that a quality urban forest in a district can affect such impressions.
Shopper patronage measures are commonly used in retail and marketing studies. Study participants projected their probable patronage behavior while viewing street and sidewalk scenarios. More positive responses were found for places having trees, compared to no-tree settings, across cities of different sizes. Potential shoppers claim they are willing to travel more often, for longer amounts of time, and over greater distances to shop in a retail district containing trees, and once arriving will spend more time there.
Why is such patronage behavior important? Shoppers traveling farther to visit a business district having trees could translate to an expanded trade area radius, adding thousands of people within urban population centers. Once there, shoppers report that they would stay longer, which could mean greater sales revenue.34
Shoppers do not purchase goods and services just to meet needs; many shoppers pursue a positive shopping experience in addition to making purchases. The streetscape is an important part of creating a welcoming, interesting shopping place. Trees can be part of a street improvements program that provides business benefits. Earlier research found that pedestrianized retail areas show an increase in foot traffic by 20% to 40%, and an increase in retail rents by 22%. An additional study found that promoting pedestrian activity will have small but significant positive effects on workers and businesses, and a small but positive impact on retail activity and rents.39
Land ownership and improvements can be expensive in urban areas. If the values of intangibles are not represented, hard costs become powerful disincentives to invest in natural capital. Without some indicator of economic value, there may be little financial incentive to consider urban nature in land-use decisions, market transactions, and capital investment budgets.
In the public sector, local leaders often make decisions about natural resources based on cost–benefit analysis. Any public investment or policy proposal that incurs public costs or affects private development brings forward advocates with evidence on how much market value will be gained or lost. Those who favor conserving or creating “nonproductive” nature are often at a disadvantage, as they cannot readily express the monetary gains or losses arising from environmental changes.
The challenge to strict monetary valuation is that city trees and open space are public goods.3,38 Consumption of a public good by one individual does not reduce the amount of the good available for consumption by others. Another key property of public goods is that they are nonexcludable: any number of people who walk under a splendid street-side tree can enjoy its shade and beauty immediately or over the course of several decades, irrespective of who pays for the planting and maintenance of the tree. It is nearly impossible to exclude any nonpaying individuals from consuming the good.
Government authorities have often invested in public goods that members of society accept as providing value, such as education or emergency response systems. Having some way to estimate the value of nature’s services helps local governments to weigh costs against returns from development or prioritize payments for green versus gray infrastructure.
Nonmarket valuation is helpful in the private sector as well. The pursuit of profit is based on estimates of costs and revenues. Nonmarket valuations offer the developer and land manager information to estimate return on investment for land development projects. For instance, there may be extra costs associated with taking greater care to protect trees during site preparation, but those costs may be offset by higher purchase prices for the building lots.
Studies across time and place generally find that property values are higher with the presence of trees, particularly in residential settings. There are a few studies that show modest or no results, but even fewer show any negative price effect from city trees. In studies measuring proximity effects on property values, properties closest to naturalistic parks and greenspace gain the greatest value. Other studies show a probable positive affect on shoppers in a variety of naturalistic retail settings.
Economic valuation is one way to communicate the importance of urban nature. Is it really possible to calculate a price that communicates all the services and benefits that trees provide?
There are some very practical limitations to non market valuation. First, urban ecosystems provide many environmental and social benefits, and no single valuation approach will capture all potential value. Yet local decision makers may not understand the nuances of resource economics and may assume that property value or contingent pricing may represent the sole economic contribution of trees.
The true and full value of city trees and forests will usually be greater than the value estimated by one method alone. For instance, urban forest analysis tools (such as i-Tree Street and cityGreen) are comprehensive multi-method economic analysis tools, but focus on environmental services (such as stormwater management and energy use) and generally do not include valuations of socio-cultural aspects.
Finally, in communicating the values of trees in terms of prices, there is the risk of reducing the meaning of trees to purely economic terms. Economic calculations may be awkward and incomplete ways to describe the range of values that people place on having quality trees and forests in their communities.36 For most people, there are matters of meaning and principle that are beyond indirect valuations of nature.37 Keen observers of human-nature interactions have noted the beauty and restorative qualities of trees for centuries. Recent studies of the human dimensions of urban forests are just starting to reveal the breadth and depth of benefits from urban experiences of nature. Talking about trees in terms of a narrow estimation of value may limit public debate about the greater importance of trees in communities.
That said, nonmarket valuations are important contributions to local decision making. Yet those who use and report such studies must understand that the valuation process is fraught with assumptions and uncertainty. The point of using any valuation analysis is not so much to think exclusively in money or market terms but to frame choices and make clear the trade-offs between alternative outcomes.4 How do the costs and benefits of investments in natural capital compare to investments in other urban services such as law enforcement or education? Is the trade-off justifyable? These are the types of questions for which even preliminary valuation can provide useful information. Quantifying the value that society assigns to trees and greenspaces provides an economic analysis that can inform public discussions about urban forest investment and stewardship.
Project support was provided by the national Urban and Community Forestry program of the USDA Forest Service, State and Private Forestry.
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