University of Vermont ScholarWorks @ UVM Graduate College Dissertations and Theses Dissertations and Theses 2010 A Multilevel Property Hedonic Approach to Valuing Parks and Open Space Christopher Treg University of Vermont Follow this and additional works at: https://scholarworks.uvm.edu/graddis Recommended Citation Treg, Christopher, "A Multilevel Property Hedonic Approach to Valuing Parks and Open Space" (2010). Graduate College Dissertations and Theses. 230. https://scholarworks.uvm.edu/graddis/230 This Dissertation is brought to you for free and open access by the Dissertations and Theses at ScholarWorks @ UVM. It has been accepted for inclusion in Graduate College Dissertations and Theses by an authorized administrator of ScholarWorks @ UVM. For more information, please contact [email protected]. A MULTILEVEL PROPERTY HEDONIC APPROACH TO VALUING PARKS AND OPEN SPACE A Dissertation Presented by Treg Christopher to The Faculty of the Graduate College of The University of Vermont In Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy Specializing in Natural Resources January, 2010 Accepted by the Faculty of the Graduate College, the University of Vermont, in partial fulfillment of the requirements for the degree of Doctor of Philosophy specializing in Natural Resources. Dissertation Examination Committee: Advisor Austin Troy, Ph.D. n Beverley we'kple, Ph.D. -!gi&b-~l.‘%%& Chairperson ~6thMickey, Ph.D. f Associate Dean, Graduate College Patricia A. Stokowski, Ph.D. Date: October 15th, 2009 ABSTRACT Many of the benefits that are generated by the natural environment are external to normal market transactions and are consequently undervalued and under-provisioned even though they substantially contribute to human welfare. One approach to valuing certain environmental goods and services is through a regression technique known as the property hedonic model. This model considers a property as a bundle of attributes where the total price of the property is decomposed into marginal, implicit prices for property- specific attributes, the context or neighborhood in which a property resides and access to environmental amenities. The goal of this dissertation research is to estimate the value of proximity to the environmental amenities of parks and open spaces using a property hedonic model for the City of Baltimore and suburban areas of Baltimore County. While the property hedonic model has been commonly used to value environmental benefits, few of these studies have distinguished the spatial scales of neighborhood characteristics from the property- specific characteristics within a regression model. In this research, a multilevel modeling approach to the typical property hedonic model was used to model the effects of attributes at different spatial scales. This approach also allowed the effect of environmental attributes to vary across geographic space and interact with attributes across spatial scales. Such methods provide a more realistic accounting of the dynamic spatial variation of the value of environmental goods and services. For parks in the City of Baltimore, the results of valuing proximity to parks showed a spatial dynamic not often captured in property hedonics. The overall fixed effect for distance to park was negative but insignificant. When allowed to vary by block group, the random effect for this variable indicated that only two-thirds of the 401 neighborhoods positively valued increased proximity to parks. No interactions were found to be significant for the entire study. However, for the population of block groups whose properties did positively value proximity to parks, the results of interactions with neighborhood and park characteristics showed that smaller and more open parks were valued higher than larger and more wooded parks. A high population density also increased the value for a property in close proximity to a park. Finally, properties with smaller yards placed a higher value on proximity to parks than those properties with larger yards, indicating a substitution effect. For open space in Baltimore County, the results indicated that while higher proportions of privately-owned open space surrounding a property increased the value of that property, open space that was publicly-accessible was not significantly valued. Privately-owned open space that was potentially developable was less than half the value of the positive effect of private, open space under conservation easements or other development restrictions. TABLE OF CONTENTS Page LIST OF TABLES .........................................................................................................vi LIST OF FIGURES ...................................................................................................... vii CHAPTER 1: LITERATURE REVIEW .......................................................................... 1 1.1. Environmental Attributes and Valuation Methods ...............................................1 1.2. Background to the Property Hedonic Model ........................................................3 1.3.1 Structural Attributes ........................................................................................5 1.3.2. Neighborhoods Attributes ..............................................................................6 1.3.3 Locational Attributes .......................................................................................7 1.3. Environmental Attributes and the Property Hedonic Model .................................8 1.4. Technical Issues with the Property Hedonic Model ........................................... 12 1.4.1. Functional Form ........................................................................................... 13 1.4.2 Submarkets ................................................................................................... 15 1.4.3. Spatial Dependency, Non-Stationarity and Scale .......................................... 17 1.5. A Multilevel Approach to Property Hedonic Models ......................................... 21 1.6. References ........................................................................................................ 26 CHAPTER 2: A PRIMER ON MULTILEVEL, PROPERTY HEDONIC MODELING 34 2.1. Abstract ............................................................................................................ 34 ii 2.2. Introduction ...................................................................................................... 34 2.3. Objectives ......................................................................................................... 44 2.4. Data .................................................................................................................. 45 2.5. Review of Issues General to all Property Hedonic Models ................................ 48 2.5.1. Functional Form ........................................................................................... 48 2.5.2. Testing for Collinearity and Other Regression Assumptions ......................... 51 2.6. Methods and Results for Building Multilevel Models ........................................ 52 2.6.1. Do Neighborhoods Matter? .......................................................................... 52 2.6.2. Are Properties within a Neighborhood Correlated? ....................................... 54 2.6.3. What are the Important Property-Specific Variables? ................................... 55 2.6.4. What is the Proportion of Level-1 Variance Explained? ............................... 57 2.6.5. What are Important Neighborhood Characteristics? ...................................... 58 2.6.7. What is the Proportion of Level-2 Variance Explained? ............................... 59 2.6.8. How does the Full Multilevel Model Compare to an OLS Model? ................ 59 2.6.9. What is the Amount of Correlation in the Full Model? ................................. 63 2.6.10. Why Allow Level-1 Variables to Randomly Vary?..................................... 64 2.6.11. What is the Difference Between Group- and Grand-Centering? .................. 67 2.6.12. Why Include an Attribute’s Group Mean at Level-2?.................................. 69 2.6.13. What is the Estimation Method Used by HLM? .......................................... 71 2.6.14. How can the Assumption of Normally Distributed Errors be Tested? ......... 72 2.6.15. What is an Optimal “Neighborhood”? ........................................................ 75 2.7. Issues When Including Environmental Attributes .............................................. 79 2.7.1. Why Allow a Main Effect to Randomly Vary? ............................................. 79 2.7.2. What are Cross-Level Interactions? .............................................................. 80 2.7.3. What is the Purpose of a Non-Hierarchical, Cross-Classified Model? ........... 81 2.8. Conclusion ........................................................................................................ 82 iii 2.9. References ........................................................................................................ 82 CHAPTER 3: A MULTILEVEL APPROACH TO MEASURING THE CONTRIBUTION OF BALTIMORE PUBLIC PARKS TO PROPERTY VALUES ..... 88 3.1. Abstract ............................................................................................................ 88 3.2. Introduction ...................................................................................................... 88 3.3. Objectives ........................................................................................................