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Parks, open spaces, trails,
and greenways—all forms of green infrastructure—have a
variety of economic impacts on nearby, and not so
nearby, properties. In particular, they influence the
land values of nearby properties, and they influence
the economic benefits that a community receives from
visitors, residents, and businesses whose decision
about where to locate is influenced by nearby
amenities. This piece looks at the effects of urban
parks on the market value—and consequent property
taxes—of nearby properties, and how communities can
harness those effects to develop and maintain new
parks. Parks are the subject of the piece
because few studies have been done on other, less
conventional components of green infrastructure,
however many of the conclusions can be extrapolated to
apply to other open spaces.
Introduction
Given the tight budgets many
municipalities are struggling with, the acquisition
and development of a new park is often seen as an
unaffordable luxury. A new park requires not only cash
up-front to purchase and develop the land, but an
on-going stream of money to cover operating and
maintenance expenses—all of which must be paid for
given already strained budgets. However, this view of
parks as luxuries from which communities receive no
substantial economic return is inaccurate. Empirical
evidence stretching back nearly 150 years demonstrates
that parks and open spaces can have significant
economic impacts on nearby properties—often to such an
extent that they are the best economic development
strategy a community can pursue in a given area.
How parks increase tax
revenues
The old joke that the three
most important things in determining the price of a
piece of property are location, location, and location
captures a free market economic truth about real
estate: the value of a piece of property is to a large
extent determined by what is—and is not—nearby.
Everyone—politicians, developers, real estate agents,
planners, and property owners—recognizes that the
value of a piece of property is influenced, for better
or for worse, by surrounding land uses.
Parks are no exception to this
“proximity effect.” Real estate markets have
consistently shown that people are willing to pay more
for homes located close to parks than they are for
comparable homes located further away. This
willingness on the part of consumers to pay higher
purchase prices for properties near well-maintained
parks clearly indicates that proximity to a park is a
feature that adds value to homes. These higher
purchase prices, in effect, represent a
capitalization—an incorporation—of the value people
place on being near a park into the property values of
local homes.
By analyzing the price
disparity between comparable properties that differ
only in their distance to a park, economists argue
that one can infer the price increment attributable to
the park. The price increment is that portion of the
sale price of a nearby property that is due to the
existence of the park. Higher sale prices due to the
proximity of a park translate into higher assessed
values, which, in turn, translate into higher property
taxes paid each year. Thus, the price increment
attributable to the park represents not only a
willingness on the part of the buyer to pay a one-time
premium for a property near a park, but a willingness
on the part of the buyer to pay an annual fee in the
form of a higher property tax bill for that proximity
to a park. This annual fee, this additional property
tax revenue stream, represents a direct, immediate,
and on-going economic return to the municipality on
its investment in a park. Since that additional
revenue stream would not exist were it not for the
park, municipalities can use that property tax revenue
stream to help fund the park without being subject to
the criticism that the park is taking money away from
other programs. While this additional property tax
revenue may not be sufficient to fully fund the
acquisition, development, and maintenance of a park
(although in some cases it may), it does make parks
much closer to economic self-sufficiency than is
widely recognized.
Empirical Evidence
A review of approximately 30
empirical studies that examined the extent to which
parks influence the market value of nearby properties
clearly shows that parks have an overwhelmingly
positive effect on property values (Crompton 2001).
For example:
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A study done by Correll,
Lillydalh, and Singell of Boulder, CO showed that
properties adjacent to a greenbelt had market values
32% higher than comparable properties located 3,200
feet away (Correll, Lillydahl and Singlee, 1979).
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A study done in the early
1980’s in Worcester, MA on the properties
surrounding four urban parks showed that a house
located 20 feet from a park sold for an average of
$2,675 (in 1982 dollars) more than a comparable
house located 2000 feet away (More, Stevens, and
Allen, 1982).
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Two studies done in Ohio,
one in Dayton in the neighborhood of the Cox
Arboretum, and the other in Columbus in the
Whetstone Park Area showed that proximity to the
parks accounted for average price premium on
residential selling prices of $3,100 and $4,700,
respectively (Kimmel, 1985).
While the amount of the
premium the market places on proximity to a park will
vary from community to community, Crompton suggests
that a 20% premium on properties adjacent to a passive
recreation park is a reasonable starting estimate. For
a heavily used park whose main focus is active
recreation, having such amenities as a swimming pool
or lighted ball fields, Crompton reports that the
empirical evidence suggests there being only a minimal
proximate value premium on properties abutting the
park, because of potential nuisance factors, but up to
a 10% premium on properties located two to three
blocks away.
Capturing the Property
Price Increment
In most communities, the
property tax increment that results from a park
accrues to the municipality’s general revenue fund
with all other property taxes. However, there are
three well-know vehicles for capturing a property
price increment that can be used by municipalities to
pay for the acquisition, development, or maintenance
of parks:
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Excess Acquisition—whereby
a municipality purchases more land than it needs for
the park and then sells the remaining properties
after the construction of the park on an open market
basis. Since the land surrounding the park will be
worth more after the park is built than when the
municipality purchased it, the municipality captures
that purchase price increment to offset the park
land acquisition cost;
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Special Assessment
District—whereby a municipality assesses those
property owners within the “park benefit district”
of a proposed new park for the amount that their
properties are likely to appreciate in value due to
the construction of the new park, thereby allowing
the municipality to capture the increase in nearby
private property values attributable to the
municipality’s investment in the park;
-
Tax-increment Financing
District—whereby municipalities issue
tax-increment bonds that are secured only by the
projected increase in property tax revenues due to
the new development. Repayment of the bond is
contingent upon increases in the assessed value of
property in the district. The assessed value of
properties in the district is determined just prior
to the establishment of the district. The value of
properties after the new development takes place is
compared to the pre-development value, and the
property taxes due to that value increment are used
to pay off the bonds.
Conclusion
Green infrastructure advocates
need to be prepared to effectively counter the
perception that parks are costly luxuries that will
only unduly burden already strained public coffers.
Empirical studies clearly show that parks have a
significant positive impact on property tax revenues.
By making use of existing studies and, when necessary,
commissioning site-specific studies, park advocates
can go a long way towards convincing municipal
decision makers that parks not only make good
environmental sense, but they also make good economic
sense.
References
Crompton, John
L. 2001. “The Impact of Parks on Property Values: A
Review of the Empirical Evidence.” Journal of Leisure
Research 33(1):1-31.
Correll,
Lillydahl, and Singell. 1979. “The Effects of
Greenbelts on Residential Property Values: Some
Findings on the Political Economy of Open Space.” Land
Economics 56(1):21-32.
More, Stevens,
and Allen. 1982. “The Economics of Urban Parks: A
Cost/Benefit Analysis.” Parks and Recreation August:
31-33
Kimmell, M.M.
1985. Parks and Property Values: An Empirical Study in
Dayton and Columbus, Ohio. Master’s Thesis, Miami
University, Oxford, Ohio.
Additional works of
interest:
Crompton, John
L. 2000. The Impact of Parks and Open Space on
Property Values and the Property Tax Base. National
Recreation and Park Association, Ashburn, VA.
Rivers, Trails
and Conservation Assistance, National Park Service.
1995. Economic Impacts of Protecting Rivers, Trails,
and Greenway Corridors: A Resource Book. National Park
Service, Washington, D.C.
For information on
a related subject, see
Harnessing the
Proximity Effect.
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