Estimating the amenity value of urban stream improvements for local residents: A hedonic approach investigation

Many major cities worldwide have waterways or streams forming a prominent part of their landscape. However, in many cases these waterways have been subjected to major modifications because of urbanisation pressures. Understandably, declining waterway health has motivated both communities and the governments that represent them to seek to revegetate and re-naturalise degraded streams and riparian zones. Yet such restoration works are generally costly, and they face competition for funds from other community projects as well as competition among themselves. There is, therefore, a need to be able to demonstrate the economic benefits of improvements in urban waterway health to assist decision makers in prioritising investments using robust and valid data. When deriving these benefit estimates it is critical to recognise the potential differences in community preferences and choices, the environmental features of importance to the community, as well as interactions occurring between these features that may affect benefit estimates.

Non-market valuation methods such as the hedonic price model have been used to estimate the value of improving urban stream health. However, there has been little consideration of the effect of channel condition on estimated values even though a range of ecological stream health indicators used internationally are based on both vegetation and channel condition. In urban residential areas, the preferences for riparian conditions may be complex and linked to different states of a socio-ecological system. Thus, in the current study, a riparian condition index based on both vegetation and channel condition was used to model preferences for improvements in urban stream quality. A theoretical perspective about the expected relationship between urban stream condition levels and house prices was developed and tested using a socio-ecological system services perspective.

Residential communities in urban areas are made up of a substantial and growing proportion of renters. However, there is limited understanding of their preferences for nearby environmental resources. This is despite renters having been found to have different demographics and tenure-lengths. These differences are likely to affect their willingness to pay for environmental resources compared to homebuyers. Consequently, renters’ preferences for improvements in urban stream quality were investigated and compared to those of homebuyers.

Despite the common use of property values in hedonic price models to deduce households’ preferences for environmental resources, there are some concerns that such values may be distorted by the fluctuations in the housing market. This is particularly relevant for valuation studies that rely on sales data from relatively short periods which may be dominated by one price trend. If housing price trends have an impact on purchasing power and/or preferences for luxury goods such as environmental resources in desirable conditions, then the estimated values may be inaccurate. Thus, the current study which covers house prices for years 2003 to 2013, investigated the effect of different house price trends on estimated implicit marginal prices for environmental resources.

The three knowledge gaps identified were addressed by (1) using an urban stream indicator which accounts for both vegetation and riparian condition, (2) estimating the value of improvements in urban stream quality for nearby residential renters and comparing that value to homebuyers and (3) modelling the impact of rising and declining house price trends on the estimated implicit marginal prices from hedonic price models. House sales data with 27,657 observations and rental price data made up of 15,465 observations were used in modelling the preferences of homebuyers and renters in the Cooks River and Georges River catchments, southern Sydney, New South Wales, Australia. Ordinary least squares and spatial hedonic regression models were used to estimate the implicit marginal prices for different levels of vegetation and riparian condition.

Results from the homebuyers’ regression model indicate that homebuyers generally prefer more natural riparian areas with more vegetation. However, the effect of riparian vegetation on house values is substantially moderated by the condition of the channel. Additionally, the findings from the spatial hedonic valuation model indicate that the economic values held by households for urban streams are closely related to changes between the three socio-ecological system states identified, and that changes within states only produce minor changes in values. Renters were found to have a preference for improvement in stream quality; however, their implicit marginal prices are substantially lower than those of homebuyers. Additionally, consistent with expectations for a market dominated by repeat buyers, results indicate that as house prices rise, so do the implicit marginal prices paid for urban stream quality levels.

The findings from this study have important implications for practice and future research. For example, greater benefits for both homebuyers and renters are achieved when both vegetation and channel condition are improved rather than improving vegetation alone. Given the different magnitudes in implicit prices from homebuyers and renters, it is worth considering the impacts of using preferences for homebuyers only especially in communities with a high population of renters. Analysts should also seek to account for housing market price trends, especially those using values from short-time periods.