Mark Thayer Direct Testimony, Ex.___, Exhibit 4 Page 1 of 143 WIND FARM PROXIMITY AND PROPERTY VALUES: A POOLED HEDONIC REGRESSION ANALYSIS OF PROPERTY VALUES IN CENTRAL ILLINOIS Jennifer L. Hinman Mark Thayer Direct Testimony, Ex.___, Exhibit 4 Page 2 of 143 Hinman, J.L. (2010) Wind Farm Proximity and Property Values WIND FARM PROXIMITY AND PROPERTY VALUES: A POOLED HEDONIC REGRESSION ANALYSIS OF PROPERTY VALUES IN CENTRAL ILLINOIS Jennifer L. Hinman In partial fulfillment of the requirements for the degree of Master of Science in Applied Economics Electricity, Natural Gas, and Telecommunications Economics Regulatory Sequence Illinois State University Department of Economics Campus Box 4200 Normal, Illinois 61790-4200 May 2010 Abstract The objectives of this study are to examine whether proximity to the 240-turbine, Twin Groves wind farm (Phases I and II) in eastern McLean County, Illinois, has impacted nearby residential property values and whether any impact on nearby property values remains constant over different stages of wind farm development with the different stages corresponding to different levels of risk as perceived by nearby property owners. This study uses 3,851 residential property transactions from January 1, 2001 through December 1, 2009 from McLean and Ford Counties, Illinois. This is the first wind farm proximity and property value study to adopt pooled hedonic regression analysis with difference-in-differences estimators. This methodology significantly improves upon many of the methodologies found in the wind farm proximity and property value literature. This study finds some evidence that supports wind farm anticipation stigma theory and the results strongly reject the existence of wind farm area stigma theory. Page 2 of 143 Mark Thayer Direct Testimony, Ex.___, Exhibit 4 Page 3 of 143 Hinman, J.L. (2010) Wind Farm Proximity and Property Values TABLE OF CONTENTS I. Introduction ............................................................................................................................. 9 II. Literature Review............................................................................................................... 10 III. Theoretical Analysis .......................................................................................................... 20 IV. Empirical Method .............................................................................................................. 24 A. Difference-in-Differences Estimator ............................................................................. 26 V. Project Location and Data .................................................................................................. 29 A. Why Twin Groves Wind Farm? ..................................................................................... 29 B. Study Area ..................................................................................................................... 29 C. Data ................................................................................................................................ 37 1. Dependent Variable ........................................................................................................ 41 2. Timeline ......................................................................................................................... 41 3. Distance – Near Twin Groves I and II ........................................................................... 45 4. Explanatory Variables .................................................................................................... 49 VI. Empirical Results ............................................................................................................... 53 A. Two Wind Farm Development Stages Estimations ....................................................... 54 1. Results: Two Wind Farm Stages, {X,Y}-Coordinates ................................................... 54 2. Two Wind Farm Stages, School Districts and Townships ............................................. 56 3. Summary of Results involving Two Wind Farm Development Stages ......................... 60 B. Three Wind Farm Development Stages Estimations ..................................................... 62 1. Results: Three Wind Farm Stages, {X,Y}-Coordinates ................................................. 62 2. Results: Three Wind Farm Stages, School Districts ...................................................... 64 3. Results: Three Wind Farm Stages, Townships .............................................................. 66 4. Summary of Results involving Three Wind Farm Development Stages ....................... 68 C. Separate Wind Farm Development Stages Estimations................................................. 70 1. Results: Separate Wind Farm Stages, {X,Y}-Coordinates ............................................ 70 2. Results: Separate Wind Farm Stages, School Districts .................................................. 73 3. Results: Separate Wind Farm Stages, Townships .......................................................... 76 4. Summary of Separate Wind Farm Stage Estimations .................................................... 79 D. Summary of Two, Three, and Separate Wind Farm Stages Estimations ....................... 79 E. Nuisance Stigma Estimation .......................................................................................... 80 F. Analysis of Results ........................................................................................................ 83 VII. Conclusion ......................................................................................................................... 85 Appendix A: Community Views and Surveys .............................................................................. 87 A. Illinois Statewide Survey ............................................................................................... 87 B. Twin Groves I and II Zoning Board of Appeals Hearing .............................................. 87 C. Twin Groves IV and V Zoning Board of Appeals Hearing ........................................... 89 D. Realtor Survey ............................................................................................................... 90 E. Appraiser Survey ........................................................................................................... 91 Page 3 of 143 Mark Thayer Direct Testimony, Ex.___, Exhibit 4 Page 4 of 143 Hinman, J.L. (2010) Wind Farm Proximity and Property Values Appendix B: Data Description and Modeling Assumptions......................................................... 91 A. Data Acquisition and Validity ....................................................................................... 91 B. Variable Construction .................................................................................................... 93 C. Spatial Effects ................................................................................................................ 94 D. Assumptions ................................................................................................................... 96 Appendix C. Descriptive Statistics: Cross Tabulations ................................................................ 97 Appendix D. Introduction to Difference-in-Differences Estimators .......................................... 118 1. Example: Two Wind Farm Development Stages ......................................................... 118 2. Example: Three Wind Farm Development Stages ....................................................... 120 3. Example: Three Wind Farm Development Stages, Townships ................................... 123 Appendix E. Full Estimation Results .......................................................................................... 130 References ................................................................................................................................... 137 TABLES Table 1. Wind Farm Proximity and Property Value Studies. ....................................................... 13 Table 2. Literature: Wind Farms and Property Values: Regional and National Analyses. .......... 14 Table 3. Literature: Wind Farms and Property Values: Localized Analyses. .............................. 15 Table 4. Study Area Township Size ............................................................................................. 30 Table 5. Census Population: 1890-2000 Townships..................................................................... 33 Table 6. Housing Units: Townships.............................................................................................. 35 Table 7. Variable Definitions ........................................................................................................ 39 Table 8. Twin Groves I and II Timeline: Stages of Wind Farm Development ............................ 42 Table 9. Descriptive Statistics for Real Property Price for Properties Near TG I and II .............. 47 Table 10. Descriptive Statistics for Real Property Price for Properties Near TG I and II ............ 49 Table 11. Descriptive Statistics ..................................................................................................... 50 Table 12. Results: Two Wind Farm Development Stages ............................................................ 61 Table 13. Results: Three Wind Farm Development Stages .......................................................... 69 Table 14.