Environmental Valuation & Cost-Benefit News

Summary
Dutch land use planning – and particularly its attempt to preserve open space outside cities has general support among the population. There is little doubt that this policy has contributed significantly to restricting urban sprawl in the central part of the Randstad (the so-called Green Heart), which is appreciated by many people. There has been less attention for the potentially disadvantageous side effects that come in the form of high building densities, high house prices and more pressure on open space within these borders (see, for instance, Rietveld and Wagtendonk, 2004). An investigation into the value attached by Dutch citizens to residential space and open space within cities seems therefore appropriate.

Jan Rouwendal and Willemijn van der Straaten investigate some important welfare aspects of a specific spatial planning measure, the provision of open space within cities. They use a monocentric model of the city to derive a simple cost-benefit rule for the optimal provision of open space. This rule is essentially the Samuelson-condition for the optimal provision of a public good, with the price of land as the appropriate indicator for its cost. The condition is made operational by computing the willingness to pay for public and private space on the basis of empirical hedonic price functions for three Dutch cities. In Amsterdam, The Hague and Rotterdam the presence of parks and public gardens within the vicinity of a house increases the value of the house. This means that households are willing to pay more for a house if the house is located in a neighborhood with open space.

Households are also found to be willing to pay more for a house if the lot size is larger. Of the three investigated cities, the city of Amsterdam has the highest price per square meter of lot size. This is in line with the tight housing market situation in Amsterdam and with the fact that the average lot size of a house is the smallest of the three cities. The willingness to pay for open space is lowest in Amsterdam. The quality of open space seems to have an influence on the willingness to pay.

The conclusions with respect to the optimal provision of open space in the three cities are mixed: in Amsterdam, this amenity appears to be oversupplied currently. This confirms similar results obtained by Cheshire and Sheppard (2002) for the provision of accessible open space in England. In The Hague, however, the amount of open space is below its optimum level, whereas in Rotterdam open space is at its optimum level. These results are conditional on the use of a 500 meter radius for the effect of open space, as is current practice in Dutch spatial planning.

Further investigation revealed that the willingness to pay for parks and public gardens increases with income, although not as fast as that for private residential space.

Contents
Abstract in English 3
Abstract in Dutch 3
Contents 5
Summary 7
1 Introduction 9
2 A framework for cost-benefit analysis 11
2.1 The model 11
2.2 Optimal provision of open space 12
2.3 A cost-benefit rule 13
3 Estimation of hedonic price functions 17
3.1 Existing literature 17
3.2 The Dutch context 18
3.3 Data 18
3.4 Specification and estimation of a hedonic function 20
4 Demand for open space and land 25
4.1 Optimal provision of open space? 25
4.2 Demand for private and public space 27
4.3 Estimation of the demand functions 31
5 Summary and conclusions 33

Keywords: spatial planning, provision of public goods, cost-benefit analysis

by Jan Rouwendal (VU) and Willemijn van der Straaten (CPB/VU)a

Full Paper Available Free of Charge at:
http://www.cpb.nl/eng/pub/cpbreeksen/discussie/98/disc98.pdf
CPB Central Planning Office Netherlands Bureau for Economic Policy Analysis www.cpb.nl
CPB Discussion Paper Number 98; January, 2008
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