The problem of identifying land use spillovers: Measuring the effects of open space on residential property values

Open space is often cited as a primary attractor of urban and suburban residents to exurban areas located just beyond the metropolitan fringe. Included in the rural amenities afforded by open space are scenic views, recreational opportunities, and an absence of the disamenities associated with development, such as traffic congestion and air pollution. Several willingness-to-pay studies have demonstrated the positive amenity value of open space but evidence of the value of open space from revealed preference methods-namely, from hedonic models-is limited and mixed. In this article, we consider the issue of estimating open space spillovers using a hedonic pricing model with residential property sales and offer an explanation for why the positive amenity value of open space effects, even if it exists, may not always be empirically detected. In this article we demonstrate the expected biases that result from the two identification problems and offer an empirical example. Using sales data on suburban and exurban residential properties in central Maryland, we find that using a simple instrumental variables technique, in which the instruments are carefully chosen to address both correlation problems, the estimated coefficient on open space increases.