Anderson and West (2006).

Open Space, residential property values, and

spatial context
Research Question:
What is the effect of proximity to open space on sales price of homes in the
Minneapolis-St. Paul metropolitan area?
Context
Many urban populations are experiencing decentralization. As cities grow at their
peripheries, developers need to weigh the costs of developing open space (losing
benefits such as opportunities for recreation, pleasing views; negative
externalities from development) against the main benefit of satisfying increasing
demand for additional housing and commercial space.
Hence, the value that residents place on open areas is a crucial piece of
information needed to perform the cost-benefit analysis.
Existing literature
Most basic:
1) Proximity to open areas find that proximity increases value
Accounting for different types of open areas and total quantity
2) Account for different TYPES of open areas find that proximity value
differs across types
3) Account for total quantity of open space
4) Distinguish between protected open space (public parks and conservation
areas) and developable open space (e.g. privately owned agricultural land)
find that preserved open space increases value while developable open
space has a lesser/insignificant/negative effect. Shows that not only does
current amenities matter but EXPECTED FUTURE CHANGES also important
to home owners.
Accounting for interaction effect of variables i.e. value of proximity to open areas
depends on a homes location and surroundings (e.g. density of location, socioeconomic condition of location, crime rates etc.)
5) Escaping to park is more valuable in a dense clutter of central city than in
relatively wide-open suburbs find that amenity value of open space rises
then falls as distance to CBD increases
Though distance to CBD may only proxy for other variables that
determine value of open space e.g. demand for open space rises
with income. So the correlation could be low-income
neighbourhoods being concentrated in peripheries and hence the
value of open space at periphery is lower? Or could it be that
spending on parks increases with income and less is spent in the
lower-income peripheries?
Contribution to existing literature + Innovation
-

Considers INTERACTION EFFECTS** i.e. how value of proximity to open space

varies with
o Amenity size
o Private lot size
o Population density
o Distance to CBD
o Income levels
o Crime rates
o Neighbourhood age composition
o Unobserved neighbourhood characteristics

Sample area and dataset are significantly larger can specify fixed effects at
a finer geographical scale to control more effectively for correlated omitted
variables
Model and main problems
- Standard hedonic theory by Rosen (1974): Home value is a function of
structural attributes S, neighbourhood characteristics and location N,
environmental amenities A. P = f(S,N,A)
- 2 specific problems with estimating open space values: reverse endogeneity
(home value influences quantity of privately owned, developable open space;
but not a problem here as public parks, golf courses and cemeteries in sample
are preserved permanently as open spaces) and omitted variable bias (dealt
with using local fixed effects)
Main regression equation:
Goal:
1) Estimate effect of proximity to different types of open space on sales price.
2) Allow effects of proximity to depend on population density, income, and
other covariates believed to influence the value of open space amenities
(interaction terms e.g. density*ln(distance)
3) Control for neighbourhood characteristics and potential omitted spatial
variables using local fixed effects.
A note on functional form: Plotting data points, authors find that relationship
between sales price and key explanatory variables clearly suggested a log-log
functional form. They tried estimating flexible-form models with Box-Cox
transformations but were unable to reject log-log relationship. Hence:

[.] gives the elasticity of sales price with respect to distance to amenity type a.
Main Results and interpretation:
Main proximity-house price relationship
- Sales price of an average home increases with proximity to neighbourhood
parks, special parks and golf courses.
- Results are sensitive to inclusion of local fixed effects!! If used POLS and add
a large number of observable control variables, proximity to neighbourhood
park DECREASES sales price of average home.
Heterogeneity of proximity value:
- Proximity more valuable if house is closer to CBD and located in a denser
and higher-income neighbourhoods.
- Proximity to neighbourhood parks more valuable in neighbourhoods with more
children; while proximity to special parks more valuable in neighbourhoods
with fewer children.
- Proximity to parks more valuable in high-crime areas (surprising! Wed think
that you wouldnt want kids to be in parks if area is high-crime)
- Proximity to golf courses and cemeteries depend on neighbourhood
characteristics and location.
Cheshires view on this finding:
Anderson and West (2006) find not one price for access to parks and open
space in Minneapolis/St Paul, but a price which varies with the local density, with
local incomes, demographic structure, and distance from the edge of the city. You
can interpret this as implying that while the price of access to parks varies
according to local conditions this is really because the housing attribute distance

from open space varies over the city according to how scarce space in gardens
is, how scarce space at the edge of the city is i.e. different demand-supply
curves at different locations