Spatial-planning-procedures-and-property-prices-The-role-of-expectations.pdf

landscape and urban planning 100 2011 77 86 contents lists available at sciencedirect landscape and urban planning journal homepage spatial planning procedures and property prices the role of expectations geerte cotteleer jack h m peerlings wageningen university and research centre the netherlands a r t i c l ei n f o article history received 23 november 2009 received in revised form 16 november 2010 accepted 17 november 2010 available online 7 january 2011 keywords spatial planning hedonic pricing property prices highway externalities a b s t r a c t the objective of this paper is to show if and to what extent spatial planning procedures affect residential property prices to answer this question we used data on residential property prices from an area in the netherlands called midden delfl and in this area policy plans and decisions on the construction of the highway a4 have been made since the 1960s however the plans have yet to be executed the data we used are from the period 1996 to 2006 using a hedonic pricing method we were able to investigate the effect of the policy plans and decisions made on property prices in this period when the construction plans seemed to be rather defi nitive sellers and buyers on the market for residential properties wanted to pay signifi cantly lower prices for properties in close proximity to the planned a4 however if plans fell apart becauseofprotestsorotherreasons thepricessellersandbuyerswantedtopaywereinsignifi cantly affected by the proximity to the planned a4 outcomes of this research could be used to develop effi cient compensation schemes helping to reduce resistance against large infrastructural plans 2010 elsevier b v all rights reserved 1 introduction on september 3 2009 the dutch minister of transport public worksandwatermanagementpresentedaplantoconstructa7km long stretch of highway between the cities of delft and schiedam the earliest plan to fi nalize this last piece of the a4 highway in the netherlandsgoesbackto1960 theactualrealization however has never taken place objections arose because the planned part of the a4 highway would run through a large nature and recreational area moreover people living in the surrounding municipalities of delft schiedam and vlaardingen protested because they feared they would be negatively affected by the pollution caused by and noise of the planned highway there is a growing body of evidence indicating that those who liveincloseproximitytoahighwayareatincreasedriskofsuffering from serious health effects bae et al 2007 noise is another nui sance to those living close to highways kim et al 2007 because of negative externalities imposed on residents property prices are also negatively affected in areas in close proximity to highways or busy roads hughes and sirmans 1992 moreover there is evi dence that properties with street views are priced lower jim and chen 2009 corresponding author at environmental economics and natural resources group wageningen university and research centre bode 129 postbus 8130 6700 ew wageningen the netherlands tel 31 317 483942 fax 31 317 484933 e mail addresses geerte cotteleer wur nl g cotteleer jack peerlings wur nl j h m peerlings more generally there is a large body of literature on hedonic pricing models that measures the effect of negative externalities imposed on residents e g farber 1998 ihlanfeldt and taylor 2004 lee et al 2008 palmquist et al 1997 ready and abdalla 2005 examples of signifi cant positive effects such as open space on property prices are described by donovan and butry 2010 tyrvainen 1997 and tyrvainen and miettinen 2000 however the effect of some open space measures on property prices is found to be insignifi cant in other instances e g bowman et al 2009 cho et al 2009 one explanation of the insignifi cance is provided by smith et al 2002 they argued that insignifi cant effects of open space might be caused by the fact that there is a future potential for development of the open space and therefore the future value of the open space is not guaranteed this argument might also hold forourhighlyurbanizedresearcharea whereconversionstourban land uses often take place because of the negative externalities imposed on residential properties many countries have regulations in place to compen sate those that are negatively affected by construction works for example in the united kingdom property owners can be compen sated through the land compensation act lake et al 2000 in the netherlands the spatial planning act wet op de ruimtelijke orden ing indutch statesthatpeopleshouldbecompensatedwhentheir property prices are negatively affected as a result of changes in zoning plans lexius 2010 however under the current regulations compensation only takes place when plans are actually realized this ignores poten tial negative effects that take place in the early phases of a spatial planning procedure given that it takes time to develop a plan to take decisions on the plan and to execute the plan possible 0169 2046 see front matter 2010 elsevier b v all rights reserved doi 10 1016 j landurbplan 2010 11 010 78g cotteleer j h m peerlings landscape and urban planning 100 2011 77 86 negative effects can occur far before the plan is expected to be realized uncertainty plays an important role here because there is always the possibility that a plan will not be executed that parts of the plan will change and that the planning takes more time than expected therefore we argue that the time aspect is important for example if a road is expected to be constructed the reduction in the value of the properties might already take place in an early stage of the planning process moreover uncer tainty about the implementation of the plan and when it will be executed can also infl uence the value of the relevant properties therefore we ask ourselves whether compensation regulations should also take damages into account that take place in the early phases of the planning process this is relevant given the fact that changes in the value of properties can lead to neg ative effects for property owners in turn this might lead to protests from property owners and therefore to the success of the project however to the best of our knowledge there is no empirical evidence regarding the effect of spatial planning procedures on the valueofresidentialproperties therefore theobjectiveofthispaper is to show whether and to what extent spatial planning proce dures affect residential property prices to answer this question we will use the data on residential property prices from an area in the netherlands called midden delfl and this is the area where the a4 highway is planned for construction the data we use are from the period 1996 to 2006 therefore we will attempt to ana lyze the effects of the planning and decision making process during this time frame a number of policy plans and decisions have been made in this period using a spatial hedonic pricing method we attempt to assess the effect of these policy plans and decisions on property prices section 2 presents the research area and gives a brief descrip tion of the policy plans and decisions regarding the construction of the a4 highway this section also discusses the empirical model and the spatial estimation procedures used to estimate the spatial hedonic pricing model in addition a description of the data used is given resultsarediscussedinsection3 followedbyconclusionsin section 4 2 materials and methods 2 1 research area and construction plans for the a4 highway the area midden delfl and as we defi ne it incorporates the cities of rotterdam schiedam vlaardingen and delft see fig 1 additionally it includes the river de nieuwe waterweg it is located in the western part of the netherlands which is a highly urbanized area where many different types of land use are com bined it contains the main greenhouse horticulture activities of the netherlands and the harbor of rotterdam one of the largest harbors in the world with all its industrial activities in between the villages cities industrial areas and greenhouses there is space for nature recreation and agricultural activities the agricultural sector is traditionally characterized by dairy operations resulting in a landscape of meadows with grazing dairy cows focusing on environmental effects landscape and noise ngos and people liv inginsurroundingareasfearthatthesespecifi cfarming natureand recreational characteristics will be lost after theconstructionofthe a4 highway in 2006 our research area midden delfl and contained twelve different municipalities in the province of south holland the netherlands within the research period 1996 2006 some of the municipalitiesmergedwiththeaimofincreasingtheeffi ciencyand effectivenessofmunicipalities thesizeoftheresearchareaisabout 580km2andtheaveragepopulationdensityoveralltwelvemunici palitiesis2423inhabitantsperkm2 fig 2adepictsthenetherlands with the research area midden delfl and highlighted fig 2b rep resents the locations of all properties used in this research as dark grey dots highways and the planned extension of the a4 are also included in fig 2b fig 2c zooms in on the planned extension of the a4 table1givesabriefsummaryofdevelopmentsaroundtheplan ning of the construction of the a4 two main factors seem to shape the process first protests by stakeholders that are organized in ngos focusing on environmental effects wildlife and landscape second costs of construction about 50 years have passed since the fi rst plan was presented and the actual construction is still fig 1 land use indication within research area g cotteleer j h m peerlings landscape and urban planning 100 2011 77 8679 fig 2 research area a residential properties b and planned extension a4 highway c shown in the circle uncertain the construction of the a4 therefore provides an inter esting case for studying the effects of spatial planning procedures on residential property prices 2 2 data and variables hedonic pricing models rosen 1974 reveal implicit prices of property characteristics from the overall property prices data used to construct a hedonic pricing model in the current research originate from the dutch association of real estate agents this database consists of 83 620 observations of transactions that took table 1 overview of policy decisions regarding the construction of the a4 yearpolicy 1953work on plan starts 1960 first offi cial plan 1965location determined early 1970ssand depletion to stabilize the underground which is required given the peat soils 1989 decision taken to construct the road however fi rst an environmental impact assessment had to be done therefore the decision was postponed 1993 1996the environmental impact assessment was performed 1996decision taken to construct the road however due to protests no implementation of the plans 1998money reserved for the construction of the a4 was reserved for an extension of the railway system 1999 offer of entrepreneurs to partly fi nance the construction of the a4 privately 2000the government reserved money for the a4 project 2001 plan presented that satisfi ed ngos so called plan norder 2002central and provincial government and municipalities agree on a specifi c plan including a plan to fi nance construction 2003concerns about large emissions make an additional environmental impact assessment necessary 2004concerns about the cost of construction arise 2005an advisory board indicates that the construction of the a4 is preferred over other alternatives however more research is needed 2006 a plan is presented that satisfi es ngos and governments however a mistake in the calculations on pollutant emissions is detected 2007the responsible ministry announces that additional research is needed 2008besides construction of the a4 some alternatives are investigated and an environmental impact assessment will be made of both the a4 and its alternatives 2009the minister of transport public works and water management presented a plan to deal with all the environmental concerns however it is still possible to appeal 2011construction http www a4middendelfl and nl achtergrondinformatie place in the period 1996 2006 in the research area and includes both sales prices and property characteristics the market share of the association ranged from 56 in 1997 to 73 in 2006 not all available transactions were included in the hedonic pricing model however for example houseboats mobile homes recreational properties and large rural estates were excluded also properties that were bought as investments and that lacked information for all explanatory variables were excluded finally transactions that were sold for nominal prices of overd9 075 150 or underd11 345 were excluded transactions with higher or lower prices were indi cated as unreliable by the dutch association of real estate agents this results in 74 959 observations finally if properties were sold more than once we included only the most recent transaction in our analysis since the structure of our weighting matrices cannot handlemultiplesalesofthesameproperty moreover theinclusion of multiple sales of the same property might lead to overrepre sentation of such properties in our dataset in the end we used 58 839 observations besides houses these observations include apartments however we defi ne different dummy variables for subcategories of apartments and houses to capture differences in prices between apartments and houses subcategories are ground fl oor apartments upstairs apartments combined ground fl oor and upstairs apartments maisonettes gallery apartments homes for the elderly terraced houses semi detached houses corner houses free standing houses apartment buildings with closed entrances to the front doors are the base case to defi ne explanatory variables for the hedonic pricing model we used information about property characteristics from the database of the dutch association of real estate agents however we also linked information from other databases to the transaction database falkplan andes provided the link between addresses of residential properties and the x y coordinates that could be used to map all properties and track their location in arcgis with respect to externalities it is assumed that the more land use of a certain type surrounding a residential property and the closerby themoreexternalitiesofthistypeoflanduseareimposed ontheresidentialproperty examplesofmeasuresthattakeaccount of the surrounding land use are the distance from the residen tial property to the nearest lot with a specifi c use e g ihlanfeldt and taylor 2004 wu 2001 wu et al 2004 the percentage of a certain type of land use in a zone around each property e g geoghegan 2002 irwin and bockstael 2001 kestens et al 2004 or adjacency of other types of land use to the property nicholls and crompton 2007 spalatro and provencher 2001 to mea sure the effects of externalities associated with highways highway exits train stations railways the planned extension of the a4 highway shopsandrestaurants social culturalfacilities including schools universities and hospitals and industrial areas we defi ne 80g cotteleer j h m peerlings landscape and urban planning 100 2011 77 86 the associated explanatory variables in the model in terms of dis tances the exact functional form used is discussed in section 2 3 distance measures were used because the reach of adjacency mea sures is too small moreover buffer analysis with percentages or dummies would require the specifi cation of too many additional variables from the bestand bodemgebruik database originating from statistics netherlands 2003 we knew the exact location of the planned extension of the a4 therefore distances between prop erties and the a4 could be calculated in arcgis all distances calculated in the current research are euclidean distances it is assumed that the planned extension of the a4 will have external effects similar to that for current highways given that expecta tions about the external effects are formed by actual experiences this seems a reasonable assumption to measure the effect of the different stages in the spatial planning procedure of the construc tion of the a4 highway we multiplied the distance measures to the future potential extension of the a4 highway with year dum mies therefore we can investigate how property prices in close proximity to the planned highway react to the different stages of the planning procedure we do not include any variables related to planned exits of this extension of the a4 because the extension has a length of only 7km data about distance to highway exits originated from the land use scanner lumos consortium 2002 and the location of high ways railways and railway stations originates from the ministry of transport public works and water management this database is called the national transport database nationaal wegenbestand nwb distancesbetweenresidentialpropertiesandhighways rail ways and railway stations were calculated in arcgis information on the location of shops and restaurants social cultural facili ties including schools universities and hospitals and industrial areas also originate from the bestand bodemgebruik database distances to these land use types were also calculated in arcgis in addition dummy variables are included regarding the adja cency to nature areas water parks and other types of open space thesedummieswerealreadyspecifi edinthedatabaseofthedutch association of real estate agents if the property is adjacent to one of these types of open spaces the associated dummy variable has the value 1 and otherwise the value is 0 adjacency measures are indicators of the view from the property since the time period is 1996 2006 we have to take the time dimensionofthedataintoaccount fig 3showsthenominalversus realpricechangesofapartmentsandhousescapturedbythe74 959 transactions including multiple sales of properties to correct for infl ation we use real prices in the hedoni