Why, yes! We'd love a park.
Why, yes! We'd love a park.
This is the kind of question residents in developing communities face across America. Of course there are advantages and disadvantages to having a park near your house. The value is often contingent on three things:
  • the house owner's preferences
  • the type of park proposed
  • and the distance the park will be from the property
No! We want a job!
No! We want a job!

John L. Crompton, a distinguished Professor at Texas A&M University, researched these three variables and accounted for their effects on value in what he termed the "proximate principle". Crompton found that being directly adjacent to a public park was often undesirable and lowered the value of the home. On the other hand, having some distance from the public park was desirable and elevated the value of the home. Similarly, all the properties near a decent park enjoyed high property values than those farther away.

Using the Hedonic Pricing Method

If we're trying to judge whether or not a park would be beneficial to our community, its best research the changes in comparable communities. The work by Crompton and many others to do this was completed with reveal preference research. Public parks and quality neighbors aren't bought and sold on a market, at least normally, thus their dollar value isn't immediately apparent. However, once we obtain a dollar value for these amenities we can estimate the impact of building a park next to your house.

The hedonic pricing method is commonly accepted to research neighborhood amenities. A hedonic pricing analysis seeks to reveal the value of a non-market good by measuring the non-market good’s effect on a market good’s value. A majority of hedonic studies use the model presented in Sherwin Rosen’s 1974 article on implicit markets. The word “hedonic” originates from the Greek word for pleasure, and is used in this context to signify how the pleasure obtained from a commodity affects its value beyond the commodity’s utility. Non-market goods like clean air, parks, rivers, and lakes all have a value to us although they are not generally bought and traded like gasoline, boats, or properties. Without the sales record for these non-market goods, a hedonic pricing analysis estimates their value through observing how they change our willingness to pay for market goods.

The implicit value of a non-market good is often one characteristic or attribute in a bundle that make up the value of a market good. For instance, when a consumer is shopping for a residence, they evaluate and compare attributes of each property in order to come to a decision. Many more apparent attributes of a property may come to mind for the consumer, such as number of bedrooms, and square footage. However, more nebulous characteristic like the quality of a nearby river can have a significant effect on a consumer’s decision. Given two nearly identical houses, why does the house near the river sell for at a greater price? A hedonic pricing study uses a regression analysis to isolate the river’s effect on prices. Through this, the value becomes clear.

Further Reading