Living on the Edge: Residential Property Values in the Urban-Rural Interface

Journal of Agricultural and Applied Economics, Dec 2007 by Espey, Molly, Fakhruddin, Fahmida, Gering, Lawrence R, Lin, Huiyan

This study estimates the contribution of both urban-rural fringe location and lake proximity on residential property values in three upstate counties of South Carolina through estimation of spatial hedonic housing price models. Location in the urban fringe and the urban-rural interface are found to have a positive impact on residential housing values relative to either urban or more rural locations. Lakes in the upstate contribute positively to housing values to the extent that the house has a view of a lake, lake access, or lake frontage.

Key Words: environmental valuation, hedonic analysis, lake proximity, rural development, urban-rural interface, urban sprawl

JEL Classifications: O18, R14, R21

While still a relatively rural state, South Carolina is currently among the more rapidly growing states in the country in terms of both population and land development. With the fifteenth fastest population growth during the last decade (U.S. Census) and the tenth fastest rate of land development (USDA), South CaroUna is experiencing rapid transformation in and expansion of the urban-rural fringe. As this growth continues, urbanized areas stretch beyond city limits, transforming small communities and formerly rural places.

Rural areas provide many amenities such as outdoor recreational opportunities and quiet, scenic landscapes. Urban areas, on the other hand, offer a greater diversity of job opportunities as well as convenient services and products. However, urban areas also provide disamenities such as traffic congestion, noise, and pollution. A mixture of these two, found in fringe or interface areas, may offer the best of both worlds for individuals and families looking for a place to live. This study compares housing values in urban, rural, and interface areas through the integration of geographical information systems (GIS) and hedonic housing price analysis to estimate the value of living in the fringe.

From 1980 to 2000, the population of the United States increased by 22% and over 30 million acres of land were developed (USDA). Proportionately, both metro and nonmetropolitan growth in the South (32.3% and 10.6%, respectively) has been second only to the West (36.2% and 27.2%, respectively). In South Carolina, the Piedmont region, located between the metropolitan areas of Atlanta, GA and Charlotte, NC and encompassing the 1-85 corridor, is second only to two coastal counties in terms of its rate of growth (Dobson, Oldendick, and Prince). With its proximity to Atlanta and Charlotte and an influx of residents and changing demographics, the area is experiencing the pressure of growth from both external and internal forces.

This study focuses on the three most rural, yet fastest-growing counties of the Piedmont region: Anderson, Pickens, and Oconee counties. While the impact of general location in urban, interface, and rural areas is the primary focus, the contribution of lake amenities on residential housing values is also estimated in this analysis. The next section reviews the literature of hedonic studies of open space amenities as well as relevant analyses of development in the urban-rural fringe. This study expands upon this literature by considering lake view, lake access, and lake frontage, along with specific urban, rural, and fringe location variables. The estimated values of location and lake proximity are found to be robust across four regression models, ordinary least squares and three models that account for spatial conelation in different ways.

Background

Many prior studies have estimated the effects of various types of open space on a house's sales price or assessed value. Among the earlier studies, Weicher and Zerbst studied parks in Columbus, OH; Conell, Lulydahl, and Singell analyzed greenbelts in Boulder, CO; Freeh and Lafferty estimated the impact of the California Coastal Commission's efforts to preserve open space; and Do and Grudnitski estimated the value of proximity to golf courses. Mahan, Polasky, and Adams estimated a positive value of proximity to urban wetlands and Tyrvainen and Miettinen estimated the value of proximity to urban forests. Espey and Owusu-Edusei examined the value of proximity to urban parks, while Netusil and Bolitzer and Lutzenheiser and Netusil examined the impact of proximity to a variety of open space types on urban property values. All of these studies, however, focus on proximity as distance to a specific urban amenity.

Anselin, Parks, and Bockstael were among the first economists to focus on spatial characteristics in the modeling of land use. Anselin was at the fore of development of spatial econometrics while Parks integrated economic analysis into models of forest and agricultural landscapes. Bockstael used landscape data in both a predictive model of land conversion to a developed use and in a hedonic model of residential land values, with a focus on the Patuxent Watershed near Washington, DC. Geoghegan, Wainger, and Bockstael expanded on some of this work by estimating the relationship between various spatial landscape indices and residential housing values in the same area. Their study produced a much richer model of open space values by taking into account development densities and landscape patterns. Hardie, Narayan, and Gardner estimated the impact of both farm and non-farm factors, including spatial variability in development, on farmland values. Isakson and Ecker examined the influence of location in the market for undeveloped urban fringe land in Denver, CO.