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Capitalization of Environmental Amenities and Wildfire in Private Home Values of the Wildland Urban Interface of Northwest Montana, USA

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Capitalization of Environmental Amenities and Wildfire in Private Home Values of the Wildland Urban Interface of Northwest Montana, USA University of Montana ScholarWorks at University of Montana Graduate Student Theses, Dissertations, & Professional Papers Graduate School 2008 Capitalization of Environmental Amenities and Wildfire in Private Home Values of the Wildland Urban Interface of Northwest Montana, USA Kyle Matthew Stetler The University of Montana Follow this and additional works at: https://scholarworks.umt.edu/etd Let us know how access to this document benefits ou.y Recommended Citation Stetler, Kyle Matthew, "Capitalization of Environmental Amenities and Wildfire in Private Home Values of the Wildland Urban Interface of Northwest Montana, USA" (2008). Graduate Student Theses, Dissertations, & Professional Papers. 1256. https://scholarworks.umt.edu/etd/1256 This Thesis is brought to you for free and open access by the Graduate School at ScholarWorks at University of Montana. It has been accepted for inclusion in Graduate Student Theses, Dissertations, & Professional Papers by an authorized administrator of ScholarWorks at University of Montana. For more information, please contact [email protected]. CAPITALIZATION OF ENVIRONMENTAL AMENITIES AND WILDFIRE IN PRIVATE HOME VALUES OF THE WILDLAND-URBAN INTERFACE OF NORTHWEST MONTANA, USA By Kyle Matthew Stetler B.A. Economics, University of Montana, Missoula, Montana, 2006 Presented in partial fulfillment of the requirements for the degree of Master of Science Forestry The University of Montana Missoula, Montana Spring 2008 Approved By: Dr. David A. Strobel, Dean Graduate School Dr. Tyron J. Venn, Chair Department of Forest Management Dr. Doug Dalenberg Department of Economics Dr.Woodam Chung Department of Forest Management Stetler, Kyle Matthew, M.Sc., May 2008 Forestry The Capitalization of Environmental Amenities and Wildfire in Private Home Values in the Wildland Urban Interface of Northwest Montana, USA Committee Chair: Dr. Tyron J. Venn Over the last decade, the United States Department of Agriculture Forest Service (Forest Service) has been increasingly tasked with protecting wildland urban interface (WUI) neighborhoods from wildfire. In addition to fire suppression duties, the Forest Service has attempted to mitigate the wildfire risk posed to the WUI through prescribed burning and other types of fuels reduction projects. But rising suppression costs and diminishing social acceptability of fuel management treatments are putting pressure on the Forest Service to economically justify its wildfire and fuel management decisions. Economic models employed by the Forest Service to support decisions about the allocation of wildfire suppression resources in the WUI have traditionally only accommodated residential structure and timber values. However, society derives many non-market benefits from publicly managed WUI areas, including recreation and aesthetically pleasing vistas, which are affected by wildfire management. The objective of this study was to assess the effects of wildfire on social welfare in northwest Montana. This was achieved by fitting a hedonic price model to house sales data from the study area to estimate how environmental amenities and wildfire affect willingness to pay for homes. It was found that living within zero to five and five to ten kilometers of where a wildfire had occurred, reduced property values by 20.2% and 5.2% respectively. This translates into a $47,580 and $13,260 reduction in the sale price of a home given a mean value of $260,000. Additionally, being able to see a burned area reduced sale prices by 3.1%. This was around an $8,060 reduction. Canopy cover is another integral component of amenity value to homebuyers wherein adding an additional hectare which is in medium canopy cover within 250 meters of the home increased property values by $3,640. However, adding an additional hectare of medium canopy cover between 250m and 500m around a home decreases property value by $1,040. By deriving shadow prices for non-market resources and wildfire effects on natural amenity values and perceived wildfire risk, this study can assist fire managers to allocate fire management resources in a more socially efficient manner, particularly in the WUI. ii ACKNOWLEDGEMENTS I would first like to thank Mike Sweet for some of the best GIS help anyone could ask for. From answering the simplest questions to helping develop ingenious solutions to complex analysis operations, Mike was instrumental throughout the study. Thanks to my committee members Dr. Doug Dalenberg and Dr. Woodam Chung. Dr. Dalenberg lent me some of his econometric wisdom in the latter stages of the study and helped to keep me on the right econometric track. Of course, a big thanks to Dr. Tyron Venn. Throughout the numerous questions and rambling conversations I eventually got everything out. With Dr. Venn’s numerous editing suggestions and comments this thesis eventually became a readable product. Another big thanks goes to Dr. Dave Calkin and the Rocky Mountain Research Station – Forest Sciences Lab - Human Dimensions Unit. Without their financial and knowledgeable support, none of this would have been possible. A final thanks to Britt Carlson, who agreed to hang out in Missoula for an extra two years while I worked on this thesis. You know I couldn’t have done it without you. iii TABLE OF CONTENTS Abstract ii Acknowledgements iii Table of Contents iv-vi List of Figures vii List of Tables viii 1. INTRODUCTION 1 1.1 Research Objectives and Justification 3 1.2 Defining the Wildland Urban Interface 4 1.3 Layout of the Thesis 6 2. THE ENVIRONMENT AND ECONOMY OF NORTHWEST 8 MONTANA 2.1 The Study Area 8 2.2 Environment of Northwest Montana 10 2.3 Socio-economy of Northwest Montana 19 2.4 Land Tenure and Natural Amenities in Northwest Montana 20 2.5 Recent Wildfire in Northwest Montana 25 2.6 Summary 26 3. VALUING CHANGES IN ENVIRONMENTAL QUALITY, 28 INCLUDING THE EFFECTS OF WILDFIRE 3.1 Non-Market Valuation Techniques 28 3.2 Examples of Hedonic Pricing Studies that have Valued Natural Amenities 30 from Property Market Transactions 3.2.1 Hedonic Pricing Model Studies Examining the Effects of Wildfire on 32 Property Values 3.3 Summary 36 4. THE HEDONIC PRICING METHOD 37 iv 4.1 Stages and Specification of the Hedonic Pricing Model 37 4.2 Functional Form of the Hedonic Price Model and Coefficient Interpretation 39 4.3 Fitting a Hedonic Price Model to the Data 41 4.4 Goodness of Fit Measures for Hedonic Price Models 44 4.5 Utilizing Geographic Information Systems in Hedonic Pricing Models 45 4.6 Econometric Concerns with HPM 45 4.7 Summary 48 5. APPLICATION OF THE HPM TO NORTHWEST MONTANA 49 5.1 Housing Data for Northwest Montana 49 5.1.1 Deriving Structural Attributes For Homes in Northwest Montana 55 5.1.2 Deriving Neighborhood Attributes For Homes in Northwest Montana 55 5.1.3 Deriving Environmental and Wildfire Attributes For Homes in Northwest 58 Montana 5.2 Fitting a Hedonic Price Model to Estimate How Environmental Amenities 62 and Wildfire Affect Property Values in Northwest Montana 5.2.1 Testing the Robustness of Model C 66 5.2.2 Testing the Importance of Being Able to See a Fire from the Home 67 5.3 Limitations and Challenges of Employing the HPM in Northwest Montana 67 5.4 Summary 69 6. EFFECTS OF WILDFIRE AND NATURAL AMENITIES ON HOME 71 SALE PRICES IN NORTHWEST MONTANA 6.1 HPM Models for Northwest Montana 71 6.2 Coefficient Interpretation 80 6.3 Goodness of fit of Models A, B, C, J and K 82 6.4 Robustness tests of Model C with Models D to I 83 v 6.5 Summary 85 7. DISCUSSION AND POLICY IMPLICATIONS 86 7.1 Shadow Prices for Structural, Neighborhood and Environmental 86 Characteristics of Homes in Northwest Montana 7.2 Effects of Structural, Neighborhood, Environmental and Wildfire 89 Characteristics on House Sale Prices in the Wildland Urban Interface of Northwest Montana 7.2.1 Structural characteristics and other MLS data 89 7.2.2 Neighborhood characteristics 90 7.2.3 Environmental and wildfire characteristics 91 7.3 Differences in preferences of Kalispell and non-Kalispell home buyers 95 7.4 Difference in home buyer preferences between homes that have a view of a 97 burned area and homes that do not 7.5 Policy Implications 98 7.6 Concluding comments and opportunities for further research 100 REFERENCES 103 APPENDIX A – FULL SUMMARY STATISTICS 112 APPENDIX B – FULL RESULTS FOR MODEL A TO K 126 vi LIST OF FIGURES Figure 2.1 Map of Study Area 9 Figure 2.2 Minimum annual Average Temperature from 1971-2000 11 Figure 2.3 Maximum annual Average Temperature from 1971-2000 12 Figure 2.4 Average Precipitation Amounts from 1971-2000 13 Figure 2.5 Elevational Gradient of northwest Montana 14 Figure 2.6 Land Cover Types in northwest Montana 18 Figure 2.7 Land tenure in northwest Montana 22 Figure 2.8 Fires from 1990 to 2006 27 Figure 5.1 Home Sales in the study area from June 1996 to January 51 2007 Figure 5.2 Northwest Montana Association of Realtors MLS Areas 56 Figure 6.1 Sale quarter trend from the second quarter (April-June) of 82 1996 to the first quarter (Jan-Mar) of 2007 vii LIST OF TABLES Table 2.1 Population Trends in Northwest Montana 20 Table 2.2 Land tenure in Northwest Montana 23 Table 5.1 Structural, Neighborhood, Environmental and Wildfire Attributes 52 Collected from Homes in the Study Area that Sold Between June 1996 and January 2007 Table 5.2 Goodness of Fit for various functional forms of Model A 63 Table 5.3 Summary Statistics for Model A 65 Table 5.4 Goodness of Fit for various functional forms of Model C 66 Table 6.1 Results for HPM Models A to E 72 Table 6.2 Results for HPM Models F to K 75 Table 6.3 Summary Statistics for Model C 79 Table 7.1 Shadow prices for variables in Model C 87 viii 1.
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