Hedonic Price Analysis of Easement Payments in Agricultural Land Preservation Programs
Authors: Lori Lynch and Sabrina Lovell (2002)
Report
Synopsis: More than 110 state and local governments have implemented agricultural land preservation programs to permanently preserve farmland. Assigning a value to the development rights to determine the cost of acquiring an easement on farm properties is difficult and can be costly. Data was collected on 409 preservation transactions from three Maryland counties and supplemented with farm-level spatial data via GIS. A hedonic price analysis is conducted to determine the marginal return to different farm characteristics using a spatial econometric model to correct for spatial correlation. Parcel characteristics such as distance to city and town, number of acres, prime soils and current land-use explain 80 percent of the variation in easement values. As expected, characteristics perform least well in explaining easement values in transfer of development right programs. This information can help formulate policy decisions and selection criteria to maximize the preservation of the agricultural economy and/or maximize public preferences. A supply curve is constructed using simulations that determine nonparticipant parcels’ easement values. To preserve the remaining eligible acres in the three counties, $167 million would be needed. This method can support programs choosing to use a point system rather than the more costly and difficult-to-apply standard appraisal methods.
Authors: Lori Lynch and Sabrina Lovell
Report
Synopsis: Local and state governmental entities have implemented transfer of development rights (TDR) and purchase of development rights or purchase of agricultural conservation easements (PDR/PACE) programs to permanently preserve farmland throughout the United States (AFT (American Farmland Trust) 2001a; AFT, 2001b; AFT, 2001c). In each of these programs, the sale of development rights results in an easement attached to the title of the land which restricts the current and all future owners from converting the parcel to residential, commercial, or industrial uses. The value of the land in alternative uses affects an owner’s willingness to participate in these programs as well as the program costs. Thus, information on the value that the private market places on parcel characteristics is important in determining participation behavior and payment levels. In addition, knowledge of the marginal contributions of different parcel characteristics to both private market prices and easement values can help program administrators decide which easement purchases can maximize society’s benefit at the lowest cost.Lynch and Lovell (2002) found that the agricultural land preservation programs in three Maryland counties (Calvert, Howard and Carroll counties) paid higher per acre easement values for farmland close to the nearest employment center, smaller farms, and farms with a high percent of prime soils, and paid lower values for farms with a high percent of cropland. The importance of certain land characteristics on the easement values was affected by the type of agricultural preservation program (TDR or PDR/PACE) that had enrolled the farm. In an analysis of whether or not the easement restrictions affected the preserved parcels’ market price, Nickerson and Lynch (2001) examined private market sales prices for 200 farmland parcels in the same Maryland counties (Howard, Carroll, and Calvert). They found that the private market paid higher prices per acre for farmland close to the nearest employment center, smaller farms, non-forested parcels, and those parcels in Calvert and Howard counties. They found that prime soils were not important in determining the parcel price in the private market. Comparing the results of these two studies, we find both similarities and differences in the effect of different characteristics on easement values and private market prices for agricultural land. This chapter explores these similarities and differences by investigating whether the private land market pays similar values for parcel characteristics or whether the preservation programs design payment schemes that are not market-driven. Analyzing a spatially explicit dataset of 2,592 arm’s-length transactions, we also correct for possible spatial correlation that might occur due to the proximity of the observations to one another. We also include parcels that are no longer in an agricultural use. By examining the local market for land, we can determine if the easement value indicated by the supply curve of eligible land to be preserved based on the easement programs’ payments is comparable to the prices received by recently sold local land.
Authors: Lori Lynch and Sabrina Lovell (2002)
Report
Synopsis: More than 110 state and local governments have implemented agricultural land preservation programs to permanently preserve farmland. Assigning a value to the development rights to determine the cost of acquiring an easement on farm properties is difficult and can be costly. Data was collected on 409 preservation transactions from three Maryland counties and supplemented with farm-level spatial data via GIS. A hedonic price analysis is conducted to determine the marginal return to different farm characteristics using a spatial econometric model to correct for spatial correlation. Parcel characteristics such as distance to city and town, number of acres, prime soils and current land-use explain 80 percent of the variation in easement values. As expected, characteristics perform least well in explaining easement values in transfer of development right programs. This information can help formulate policy decisions and selection criteria to maximize the preservation of the agricultural economy and/or maximize public preferences. A supply curve is constructed using simulations that determine nonparticipant parcels’ easement values. To preserve the remaining eligible acres in the three counties, $167 million would be needed. This method can support programs choosing to use a point system rather than the more costly and difficult-to-apply standard appraisal methods.
Local Land Markets and Agricultural Preservation Programs
Authors: Lori Lynch and Sabrina Lovell
Report
Synopsis: Local and state governmental entities have implemented transfer of development rights (TDR) and purchase of development rights or purchase of agricultural conservation easements (PDR/PACE) programs to permanently preserve farmland throughout the United States (AFT (American Farmland Trust) 2001a; AFT, 2001b; AFT, 2001c). In each of these programs, the sale of development rights results in an easement attached to the title of the land which restricts the current and all future owners from converting the parcel to residential, commercial, or industrial uses. The value of the land in alternative uses affects an owner’s willingness to participate in these programs as well as the program costs. Thus, information on the value that the private market places on parcel characteristics is important in determining participation behavior and payment levels. In addition, knowledge of the marginal contributions of different parcel characteristics to both private market prices and easement values can help program administrators decide which easement purchases can maximize society’s benefit at the lowest cost.Lynch and Lovell (2002) found that the agricultural land preservation programs in three Maryland counties (Calvert, Howard and Carroll counties) paid higher per acre easement values for farmland close to the nearest employment center, smaller farms, and farms with a high percent of prime soils, and paid lower values for farms with a high percent of cropland. The importance of certain land characteristics on the easement values was affected by the type of agricultural preservation program (TDR or PDR/PACE) that had enrolled the farm. In an analysis of whether or not the easement restrictions affected the preserved parcels’ market price, Nickerson and Lynch (2001) examined private market sales prices for 200 farmland parcels in the same Maryland counties (Howard, Carroll, and Calvert). They found that the private market paid higher prices per acre for farmland close to the nearest employment center, smaller farms, non-forested parcels, and those parcels in Calvert and Howard counties. They found that prime soils were not important in determining the parcel price in the private market. Comparing the results of these two studies, we find both similarities and differences in the effect of different characteristics on easement values and private market prices for agricultural land. This chapter explores these similarities and differences by investigating whether the private land market pays similar values for parcel characteristics or whether the preservation programs design payment schemes that are not market-driven. Analyzing a spatially explicit dataset of 2,592 arm’s-length transactions, we also correct for possible spatial correlation that might occur due to the proximity of the observations to one another. We also include parcels that are no longer in an agricultural use. By examining the local market for land, we can determine if the easement value indicated by the supply curve of eligible land to be preserved based on the easement programs’ payments is comparable to the prices received by recently sold local land.