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The methods for assessing the link between property values and highways are similarly well established. The methods described below are based largely on appraisal techniques and hedonic analyses that have been applied for decades. Every metropolitan area and small town has property appraisers, and their expertise and methods can be adapted to understand the impact of highway projects on land and property values. Hedonic analysis of property prices was pioneered in the 1970s and is now the subject of a large literature. While both appraisal techniques and hedonic (or regression) studies of property values can be applied to many phenomena other than transportation projects, both can and have been adapted many times to highways in ways that provide a strong foundation for incorporating land and property value impacts into an assessment of environmental justice. The state of the practice in this area is evolving rapidly. Until recently, property value data were difficult to obtain and hard to apply to geographically oriented studies of the sort required by an environmental justice analysis. For that reason, despite a wealth of theory, applied property value studies were rare until a decade ago. Both technology and data availability have changed that. There is a wealth of data sources for property values. In most states, local tax assessor offices collect data on property sales. Those data are increasingly available, either at no charge from the assessor's office or (more commonly) for a fee from real estate data companies such as those described in Method 3 of this chapter. Local newspapers typically track the health of local real estate markets, and universities now often have units devoted to collecting and disseminating real estate market data. These data can be supplemented, as needed, with information on property values from tax appraisals or other sources, such as the U.S. Census public use micro sample. The rich availability of data combined with modern geographic information system (GIS) technology creates a powerful tool. Property sales data can be matched to specific parcels; and, with GIS, precise estimates of distance from a highway project or distance from other sources of impacts can be developed. The net effect is that the use of property values to understand the impact of public projects is poised to grow rapidly. Public agencies will increasingly be able to use information about property values or real estate markets to understand the impacts of their projects, highway projects included. SELECTING AN APPROPRIATE METHOD OF ANALYSIS Certain special issues must be considered when performing any environmental justice assessment of property values. These topics are described below. Retrospective versus predictive analyses. Most property value analyses of highways have so far been retrospective in nature. Typically, a researcher examines how access to an existing or newly built highway influences property values nearby. While that adds to our knowledge about the link between highways and property prices, a retrospective study is often not sufficient for environmental justice questions that arise as part of the project analysis phase. For many environmental justice questions, a predictive analysis is needed. The question is often, "if this highway project goes forward, what will be the environmental justice implications?" For property value-based environmental justice assessments, the objective often is predicting the 276

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future impact of highway projects not yet built and then assessing how those property value impacts affect minority, low-income, or other protected populations. Fortunately, predictive analyses can often be an easy adaptation from retrospective analyses, and as land price and property value analyses become increasingly common, that adaptation will become even more feasible. Briefly stated, the retrospective analyses are the knowledge base for moving to predictive analyses. Future impacts of highway projects can be understood by applying what is known about past impacts of similar highway projects on similar properties. The methods described below can be used to predict how a highway project will impact property values. Often past studies will provide coefficients, slopes, or average effects that can be applied to similar projects to infer how future projects will influence property values. Owners and renters. Property value impacts affect both owners and renters. Economic theory suggests that the purchase price of a structure is directly linked to the rental value. For that reason, studies of property value impacts can and should be applied to both owner-occupied and rental property. For housing markets, most data sources report either the appraised value or the sale value of the property and as such apply most directly to the market for owner-occupied housing. If a property is rented, one can infer the magnitude of the impact on rental property by relating the rental price to the overall purchase price of the structure. What will likely be more important for an environmental justice analysis is to distinguish between benefits and costs that are borne differentially by landlords and tenants. In a simple situation, negative property value impacts on owners (landlords) will result in lower rents because the demand for the rental property will drop. In such situations, landlords will be harmed, because they will lose property value. Renters will both pay lower rents and experience disamenities, and so the perceived effects to renters are based on their individual values and perception. Thus, counterintuitively, the landlords might be more adversely affected by a negative highway impact than renters, depending on the renters' values. To clarify this, consider the following example. A house near a new highway is subject to increases in highway noise. This disamenity reduces the number of persons willing to rent the house, and that drop in demand results in a lower rental price. The renter, living near the highway, experiences a noise disamenity, but if the rental market is competitive, the lower rental price will compensate the renter for the noise disamenity. The renter, on net, might be no worse off depending on his or her values and needs. The owner of the house, on the other hand, sees rental income (and the sale value of the house) drop, and so the landlord is adversely affected. The converse situation could also hold. Suppose that, for the same house near the same new highway, the renter has signed a long-term lease. The rent will not drop to reflect the noise disamenity until, at the earliest, the lease is up for renewal. Even then, if the rental market is not perfectly competitive, or if renters have imperfect information about the nature of the noise disamenity, rents might not drop to fully reflect the noise disamenity. Then the renter would be, 277

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on net, disadvantaged by the impact of the highway, while the landlord could, if rental income does not drop at all, see no impact. The crucial question is whether and how quickly property prices adjust to reflect the impact of the highway, be that impact positive or negative. While understanding that is important in interpreting any property value analysis, it is especially important in understanding how land value impacts may be experienced by renters and landlords. Residential property and commercial property. Most property value studies, and most property value data sets, look at either residential or commercial properties. Combining the two in the same analysis is rare. Because environmental justice studies will sometimes need to understand the impact of highways on both residential and commercial properties, we recommend looking at both markets when that is appropriate. The analyses of the residential and the commercial markets will likely use different data and might yield different findings. For example, the literature has shown that being very close to a highway (typically less than a quarter mile) can be, on net, a disamenity that will depress the value of residential property (e.g., Langley 1981). The noise and (possibly) air quality impacts of the highway apparently outweigh accessibility advantages for residential properties at those distances. Yet the evidence does not as strongly suggest that commercial properties will experience the same disamenities. Apparently firms either benefit more from being very close to highways or the negative impacts (such as noise) matter less for commercial or office uses. The double counting critique. The impacts on property values should not be added to other impacts that are also influencing property values. Consider the following example. Suppose one found that persons near a highway would be bothered by increased traffic noise, and suppose surveys of those residents yielded a dollar value estimate of the noise impact. Suppose a transportation agency also conducted an assessment of how the highway would affect property values in the area adversely impacted by increased highway noise, and suppose that study showed that property values near the new highway would drop. One should not add both the estimated value of the noise impact from the survey and the lost property value together. To do so would count the impact of noise twice, since the lower property values are due in part (likely in large part) to the increased noise. An agency should choose one way to measure the impact of increased highway noise--the survey method or the property value assessment. Or the agency could consider both methods as alternative measures, and choose some way to average or otherwise use information from both methods. But adding the dollar value impact from both methods together will overstate the noise impact from the highway, because that impact would be counted twice--once by asking residents in a survey how they perceive they are impacted and a second time by assessing how home buyers pay less for homes in the noise contour of the new highway. Property value analysis can illuminate and verify analyses from other methods. Often times that will be good practice. Yet agencies should be aware not to double count impacts by adding the estimated impact from property value analysis to assessments of specific impacts that are driving the property value analysis. Remembering that property values are a summary measure and that changes in property values are derivative of the full range of effects of a highway project should 278