The Positive Economics of Natural Resource Conservation in Land Development

Natural resource protection may be a fine idea, but how much does it cost? How does it change the bottom line for the development community, landowners and residents alike? This question is increasingly being posed to those advocating better conservation efforts.

Natural areas development does not have to be synonymous with the degradation of natural resources. When new growth is managed in a watershed context, homes and businesses can be located and designed to have a minimized impact on forests, streams, lakes and wetlands.

Resource protection can be designed to protect water quality while increasing the value of existing and developable land. If used correctly, the design can protect the rights of property owners.

Many players in the local economy perceive that watershed protection can be costly, burdensome and potentially a threat to economic vitality. Others counter that watershed protection is inextricably linked to a healthy economy. While economic research regarding watershed protection is rather sparse, much of the evidence indicates that quality design can have a positive or at least neutral economic effect, when applied property. Watershed planning involves an assessment of stream conditions and development of strategies to maintain or restore their condition. It may direct proposed development to the least sensitive area and attempt to control the amount and location of impervious cover in a watershed. Recent studies, suggest that the effect of watershed planning is largely positive:

• Beaton (1988) examined land values before and after the Maryland Critical Area and New Jersey Pinelands land use regulations were imposed. He found that the regulations had no impact on the volume of construction activity, and had slightly improved the local tax base. This was because the value of developed land within the regulated area had climbed from 5 to 17% and the value of vacant land had increased by 5 to 25%. As Beaton notes, ³residents in both regions benefited from the knowledge that public actions were taken to protect the environmental amenity in which they had already invested.² Since both developed and undeveloped land had grown in value, owners received a significant premium when they sold their property.
• Land use plans that retain open space, rural landscapes, and recreation opportunities contribute to the quality of a community or region. A survey of chief executive officers has ranked quality of life as the third most important factor in locating a new business (National Park Service 1992). As regional economies become ever more competitive, a high quality-of-life ranking can provide a critical edge in attracting new business.

Citizens also rank protection of their water resources quite highly. A North Carolina survey showed a strong preference for spending more public funds on environmental protection than for highway construction, welfare, or economic development. Only crime and education ranked as higher spending priorities among citizens (Hoban and Clifford 1992).

Communities have repeatedly found that property adjacent to protected wetlands, floodplains, shorelines, and forests constitutes an excellent location for development. (U.S. EPA 1995). A sense of place is instilled by the presence of water, forest and natural areas and this preference is expressed in a greater willingness to pay to live near these habitats. Examples include:

• Two regional economic surveys document that conserving forests on residential and commercial sites can enhance property values by an average of 6 to 15% and increases the rate at which units are sold or leased (Morales 1980 and Weyerhauser 1989). An Atlanta study also showed that the presence of trees and natural areas measurably increased the residential property tax base (Anderson and Cordell 1982). In addition, urban forests boost property values by reducing irritating noise levels and screening adjacent land uses. The absence of trees increases dust levels by 4 to 100 times (Nelson 1985).

Conserving trees also saves money on energy bills and treatment of runoff. Studies by the American Forest Association have shown that homes and businesses that retain trees save 20 to 255 in their energy bills for heating and cooling compared to homes where trees are cleared. The urban forest canopy also helps to reduce the volume of stormwater runoff. A modeling study by Henson and Rowntree (1988) reported that stormwater decreased by 17% due to forest cover in development during a typical one-inch rainstorm. The shoreline or creek buffer can create many market and non-market benefits for a community, particularly if they are managed as a greenway. These include:

• An increase in the value of adjacent property. For example, housing prices were found to be 32% higher if they were located next to a greenbelt buffer (Correl et al. 1978). Nationally, buffers were thought to have a positive or neutral impact on adjacent property values in 32 out of 39 communities surveyed (Schueler 1995).
• Forested shoreline and stream buffers have been found to be effective in removing sediment, nutrients and bacteria from stormwater runoff and septic system effluent in a wide variety of rural and agricultural settings (Desbonnet et al. 1994).
• Buffers provide a critical ³right of way² for streams during large floods and storms. When buffers contain the entire 100-year floodplain, they are an extremely cost-effective form of flood damage avoidance for both communities and individual property owners. As an example, a national study of ten programs that diverted development away from flood-prone areas found that land next to protected floodplains had increased in value by an average of $10,427 per acre (Burby 1988).
• Homes situated near seven stream restoration projects had a 3 to 13% higher property value than similar homes located on unrestored streams (Streiner and Loomis 1996). Most of the perceived value of the restored stream was due to the enhanced buffer, habitat, and recreation afforded by the restoration.

In addition, buffers can sharply reduce the number of drainage complaints received by local public works departments and they are often an effective means to mitigate or even prevent shoreline erosion.

A shoreline or creek buffer can help protect valuable wildlife habitat. For example, each mile of buffer can protect 12 acres of habitat along shorelines and 25 acres along creeks (Schueler 1995). A continuous buffer provides a wildlife corridor, which is of particular value in protecting amphibian and waterfowl populations, as well as fish spawning and nursery areas. Such protection has an economic payoff as well. For example, Adams (1994) reports that nearly 60% of suburban residents actively engage in wildlife watching near their homes, and a majority are willing to pay a premium for homes located in a setting that attracts wildlife.

Corporate land owners can save between $270 to $640 per acre in annual mowing and maintenance costs when open lands are managed as a natural buffer area rather than turf (Wildlife Habitat Council 1992).

When managed as a ³greenway², stream buffers can expand recreational opportunities and increase the value of adjacent parcels (Flink and Searns 1993). Several studies have shown that greenway parks increase the value of homes adjacent to them. Pennypack Park in Philadelphia is credited with a 33% increase to the value of nearby property. A net increase of more than $3.3 million in real estate value is attributed to the park (Chesapeake Bay Foundation 1996a). A greenway in Boulder, Colorado was found to have increased aggregate property values by $5.4 million, resulting in $500,000 of additional tax revenue per year (Chesapeake Bay Foundation 1996a).

Effective shoreline buffers can increase the value of urban lake property. For example, a recent study of Maine lakes found that water clarity was directly related to property values. Specifically, a three-foot improvement in water clarity results in $11 to $200 more per foot of shoreline property, potentially generating millions of dollars in increased value per lake (Michael et al. 1996).

The concept underlying cluster development is to minimize lot sizes within a compact developed portion of a property while leaving the remaining portion prominently open. Housing can still consist of detached single-family homes as well as multi-family housing or a mix of both. Cluster development creates protected open space that provides many market and non-market benefits. For example, some communities have found that cluster development:

• Can reduce the capital cost of subdivision development by 10 to 33%, primarily by reducing the length of the infrastructure needed to serve the development (NAHB 1986; Maryland Office of Planning 1989; Schueler 1995).
• Typically keeps from 40 to 80% of total site area in permanent community open space. Much of the open space is managed as natural area, which often increase the future value of residential property in comparison to low-density subdivisions. This premium has ranged from 5 to 32% in communities in the Northeastern United States. In Massachusetts, cluster developments were found to appreciate 12% faster than conventional subdivisions over a twenty-year period (Lacey and Arendt 1990). In Howard County, Maryland, a cluster development with an average lot size of one acre had the same market value as a conventional subdivision with one to five acre lots (Legg Mason 1990).
• Can reduce the need to clear and grade 35 to 60% of total site area. Since the total cost to clear, grade and install erosion control practices can range up to $5,000 per acre, reduce clearing can be a significant cost savings to builders (Schueler 1995).
• Can reserve up to 15% of the site for active or passive recreation. When carefully designed, the recreation space can promote better pedestrian movement, a stronger sense of community space and a park-like setting. Numerous studies have confirmed that developments situated near trails or parks sell for a higher price than more distant homes.
• Provides a developer some ³compensation² for lots that would otherwise have been lost due to wetland, floodplain or other requirements. This, in turn, reduces the pressure to encroach on stream buffers and natural areas.
• Can reduce site impervious cover from 10 to 50% (depending on the original lot size and layout), thereby lowering the cost for both stormwater conveyance and treatment. These cost savings can be considerable, as to the cost to treat the quality and quantity of stormwater from a single impervious acre can range from $2,000 to $50,000. In addition, the ample open spaces within a cluster development provide a greater range of locations for more cost-effective stormwater runoff practices.

Some indication of the potential savings associated with ³open space² or cluster development are shown in an example from Remlik Hall Farm (Chesapeake Bay Foundation, 1996b). Cost estimates were derived for two development scenarios that result in an equivalent yield to the developer. In the conventional scenario, the farm is subdivided into 84 large-lot units, whereas in the open space scenario 52 higher-end units are located on smaller lots in three clusters. Over 85% of the site is retained in open space, as farmland, forest or wetland. The open space scenario saved over $600,000 for this 490-acre cluster development (or about 50% lower costs than the conventional scenario). These large savings in development infrastructure including engineering, sewage and water, and road construction costs certainly contribute to a better bottom line. In addition, Arendt (1994) maintains that open space units sell both more rapidly and at a premium, thus increasing cash flow which is always a prime concern to the developer.

Reducing the amount of impervious cover created by subdivisions and parking lots at developments can lead to savings for municipalities and developers. Impervious cover can be minimized by modifying local subdivision codes to allow narrower or shorter roads, smaller parking lots, shorter driveways and smaller turnarounds. These tools make both economic and environmental sense. Infrastructure such as roads, sidewalks, storm sewers, utilities, and street trees normally constitute over half the total cost of subdivision development. (CH2M-Hill 1993). Much of the infrastructure creates impervious surfaces. Thus, builders can realize significant cost savings by minimizing impervious cover. Some of the typical savings include:

• $1,100 of construction cost space that is eliminated in a commercial parking lot, with a lifetime savings in the range of $5,000 to $7,000 per space when future parking lot maintenance is considered.
• $150 for each linear foot of road that is shortened (pavement, curb and gutter, and storm sewer);
• $25 to $50 for each linear foot of roadway that is narrowed; and
• $10 for each linear foot of sidewalk that is eliminated.

In addition to these direct cost savings, developers will realize indirect savings. For example, costs for stormwater treatment and conveyance are a direct function of the amount of impervious cover. Thus, for each unit of impervious cover that is reduced, a developer can expect a proportionately smaller cost for stormwater treatment.

Current state and local requirements for erosion and sediment control (ESC) often increase the cost of development. On a typical site, the cost to install and maintain erosion and sediment control can average $800 to $1,500 per cleared acre per year, depending on the duration of construction and the site conditions (SMBIA 1990; Paterson et al. 1993).

Application of other watershed strategies can help reduce the total cost for ESC control at a construction site. Forest conservation, buffers and clustering all can sharply reduce the amount of clearing needed at a site, thereby reducing area that must be controlled by ESC practices.

ESC controls also provide direct and indirect benefits to both the builder and the adjacent property owner. By keeping soil on the site, a contractor needs to spend less time and labor re-grading the site to meet final plan elevations and less effort stabilizing eroded slopes. Careful phasing of construction within subdivisions often leads to Œeconomies¹ over the entire construction process.

Best management practices (BMPs), which include stormwater ponds, wetlands, filtering, infiltration, and swale systems, are among the most expensive watershed protection efforts. Urban BMPs are designed to promote recharge, remove pollutants, prevent streambank erosion, and control downstream flooding. Despite their high construction and maintenance costs, BMPs can confer several tangible economic benefits, as the following shows:

• The cost of designing and constructing BMPs can be very substantial. A recent cost study indicates the cost of treating the quality and quantity of stormwater runoff ranges from $2,000 to $50,000 per impervious acre. The construction costs do not include cost of land used for stormwater. Stormwater BMP costs are greatest for small development sites (>5 acres), but drop rapidly at larger sites. In general, about a third of every dollar spent on stormwater BMP construction is used for quality control, with the rest devoted for flood control.
• Stormwater management can also be beneficial for developers, since stormwater ponds and wetlands create a waterfront effect. For example, U.S. EPA (1995) recently analyzed twenty real estate studies across the U.S. and found that developers could charge a per lot premium of up to $10,000 for homes situated next to well-designed stormwater BMPs, and could be leased or rented at considerable premiums (and often at a much faster rate)
• In a comparison of home prices in Minnesota, sale prices were nearly one-third higher for homes that had a view of a stormwater wetland compared to homes without any ³waterfront² influence. Indeed, the homes near the stormwater wetland sold for prices that were nearly identical to those homes bordering a high quality urban lake (Clean Water Partnership 1997).
• Not all BMP¹s provide a premium. For example, Dinovo (1995) surveyed the preferences of Illinois residents about living or locating next to dry ponds, and found most residents would not pay a premium to live next to a dry pond, and in some cases expected to pay less for such a lot. The study confirmed that wet ponds command a considerable premium and they even scored higher than natural areas, golf courses, and parks in some location decisions.

In addition, some stormwater BMPs, such as grassed swales and bioretention areas, actually are less expensive to construct than enclosed storm drain systems, and provide better environmental results. Liptan and Kinsella-Brown (1996) documented residential and commercial case studies where the use of bioretention and swales reduced the size and cost of conventional storm drains needed to meet local drainage and stormwater management requirements. The more natural drainage system eliminated the need for costly manholes, pipes, trenches and catchbasins, while removing pollutants at the same time. Total reported savings for the three projects ranged from $10,000 to $200,000.

Stormwater BMPs must be maintained, and that cost burden falls on landowners or local government. Over a 20 to 25 year period, the full cost to maintain a stormwater BMP is roughly equal to its initial construction costs (Wiegand et al. 1986). Few property owners and homeowner associations are fully aware of the magnitude of stormwater maintenance costs, and most fail to regularly perform routine and non-routine maintenance tasks. It is likely that performance and longevity of many stormwater practices will decline without adequate maintenance. Therefore, local governments need to evaluate how the future maintenance bill will be paid and who will pay it.

Some watershed protection strategies have the potential to save developers money, through lot premiums, greater marketability, and lower construction costs. At the same time, a developer has to pay out-of-pocket for stormwater and sediment control, and consultant fees to navigate through the watershed protection maze. As might be expected, the community at large gets the greatest overall benefit associated with watershed protection, and appears to bear the least cost (although they will have to pay more for housing).

The premise that carefully managed watershed protection strategies can have a balanced, positive effect on the local economy is generally supported by the economic research to date. It must, however, be acknowledged that our understanding of the economics of watershed protection is limited at present.

At first glance, it seems futile to calculate the intrinsic economic value of a quality stream, a productive cove, a clear lake, or a forested floodplain. Calculating the Œtrue¹ value of a quality watershed seems a difficult task, subject to interpretation. Most economists would privately agree this could probably never be done. What is interesting about urban watersheds, however, is that society measures the value it places on these resources every day, in terns of property values, real estate premiums, lease-up rates, stormwater utility fees, construction costs and volunteer hours donated. While we may never know the true value of a stream, the research reviewed clearly suggests that society does not value them lightly.

The timeless real estate adage Œlocation, location, location¹ underscores the importance of how people value land. Research profiled here suggests that many of us prefer to locate next to forests, wetlands, stream and other water features. More importantly, even those members of the community who do not live next to these features still recognize the important role that they play in the quality of the environment and their lives. Harnessing this sense of place is perhaps the most important element of natural resource protection programs.

ESA, Inc. is extensively involved with assisting our engineering and land development clients with environmentally sensitive site design. We provide detailed information regarding natural resource amenities of any given site, their regulatory confines, and how best to incorporate these natural and/or man-made features into the overall land planning process. From feasibility and conceptual plan, through final site plan and beyond, ESA, Inc. can provide the necessary environmental consulting and management services to better realize economic returns through the life of the project.