Environmental Valuation

Interregional and Intraregional Perspectives

John. I. Carruthers, Bill Mundy

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351158947
• Edition: 1
• Topic: Architecture
• Subtopic: Urban Planning & Landscaping

Environmental quality is one of the most important issues faced by contemporary urban and regional policy. Amenities such as access to the natural environment, attractive neighbourhood characteristics and high quality public goods and services, play a direct role in determining where people choose to live and how much they are willing to do so. Likewise, negative environmental conditions, such as contamination, influence the real estate markets and the 'value' of a region. Increasingly, regions become winners or losers based on the quality of life they offer their inhabitants. Bringing together a team of leading scholars, this book addresses the issues of environmental valuation, answering questions such as: What kinds of features matter? How large of an affect do they have? How do they affect the spatial distribution of the population? And how should the value that people place on their environment affect urban and regional policy?

Part 1
Interregional Perspectives

Chapter 1
Environmental Valuation: Connecting Theory, Evidence, and Public Policy

John I. Carruthers
U.S. Department of Housing and Urban Development

Gordon F. Mulligan
University of Arizona

1.1 Introduction

Over the past 25 years, researchers in the social sciences and public policy fields have grown increasingly interested in how environmental valuation affects human behavior and settlement patterns. Specifically, quality of life – broadly interpreted as the satisfaction a person derives from surrounding conditions – is understood to influence the economic decisions of households and firms alike, including where to locate, in what spatial configuration, and at what cost. While it is not clear that the two groups always value the same factors (Gabriel and Rosenthal 2004) it is well known that environmental conditions matter to both in important ways (Bartik and Smith 1987; Gyourko et al. 1999; Mulligan et al. 2004). In fact, quality of life is so fundamental that it has become a primary driver of the growth process and, as a result, helps to determine places’ competitive advantage. What explains the role of environmental valuation in people’s decision-making process? How is it observed? And, what implications do the theory and evidence hold for planners and other policy makers responsible for guiding the path of urban and regional development?

This chapter responds to these questions by: (1) describing, in plain terms, how quality of life is valued and reviewing some key pieces of supporting evidence; (2) using an econometric analysis to illustrate how environmental conditions affect place-to-place variation in the cost of living; and (3) suggesting how and why public policy should respond. While there is some discussion of firms and employment, the primary goal of the chapter is to introduce the concept of environmental valuation and its implications for household behavior from an interregional perspective. The empirical component involves an analysis of the relationship between median household income and median housing value across the continental United States. In the first step, the error term from a bivariate regression equation is used to identify locations where people pay a premium (discount) to live due to a high (low) quality of life. In the second and third steps, an additional variable, the USDA’s natural amenity index, is added into the original equation in order to examine how unexplained variation in the local cost of living is affected and then identify the areas of the country where the natural environment matters the most. The analysis, although only exploratory in nature, highlights the importance of quality of life to the contemporary economic landscape.

1.2 Background

The concept of environmental valuation is straightforward: Economic value, which is generated by competition over scarce resources, is placed on conditions that enhance the wellbeing of housholds and firms. And, because quality of life factors – including temperature, scenic beauty, access to public goods and services, and others – vary across space, the expense associated with occupying a given location does too. As a result, when viewed from both interregional and intraregional perspectives, households’ decisions about where to live and the costs they incur to do so are partially attributable to the relative desirability of the surrounding environment. In other words, people gravitate toward nice places and pay more to live in them, mostly via housing prices¹ and/or forgone wages, than in less attractive areas. Ultimately, the process produces a state of spatial equilibrium where households are indifferent among locations because there is no benefit to be gained from moving from one location to another (Greenwood et al. 1991).

This analytical framework relies on compensating differentials to explain residential choice and place-to-place variation in the cost of living (Rosen 1979; Roback 1982). The basic idea is that location-specific amenities make up for affordability and/or wages, so that, other things being equal, living in an attractive, high-cost/low-wage area is equivalent to living in an unattractive, low-cost/high-wage area. Colloquially, people living in the Puget Sound region of Washington State, for example, refer to the Mt. Rainier effect to describe the area’s high quality of life and the hold it has on them. Moreover, residents commonly justify their dissatisfaction with the expense of housing and/or local wages on the basis of the Pacific Northwest’s natural beauty, temperate climate, and abundant recreational opportunities. At the other end of the spectrum, less desirable areas leave their residents better off financially, so that an identical house is more affordable and/or the identical job pays higher wages.² In this way, compensating differentials are fundamental to understanding why people choose to live where they do and the tradeoffs they make along the way (see Clark et al. 2003 for an analysis of the connection between the two decisions).

Several interconnected factors account for the rising importance of environmental valuation in the United States. In particular, advances in communications technology, the expansion of interstate transportation systems, economic restructuring, and far-reaching demographic trends, such as the aging of the baby boom generation, have contributed to an interregional process of population deconcentration. These and other socioeconomic shifts have attracted widespread interest among researchers due to their role in facilitating the nonmetropolitan turnarounds observed during the 1960s, 1970s, and early 1990s (Frey 1993; Fuguitt and Beale 1996). Meanwhile, at the intraregional level, a similar process is driven by employment decentralization, falling commuting costs, and rising incomes – all of which provide people with greater access to new, low-density housing surrounded b...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• List of Contributors
• Preface
• Part 1: Interregional Perspectives
• Part 2: Intraregional Perspectives
• Index