Contingent valuation: how accurate is it when valuing impacts on property values? Judith Callanan RMIT University Melbourne, Australia

Contingent valuation: how accurate is it when valuing impacts on property values?

Judith Callanan

RMIT University

Melbourne, Australia

Judith Callanan PRRES - Melbourne 2013 2

Background

• Part of an extensive research project analysing the impact of HVOTLs (High Voltage Overhead Transmission Lines) on property values.

Case study

• Hedonic Analysis

• Perception survey of residents

• Willingness to pay survey – Contingent Valuation


Introduction

• Willingness to Pay Survey carried out in Auckland, New Zealand.

• 4 sets of 220kv lines

• Potential for lines to be placed underground

• Carries main power supply into Auckland city.


Literature Review

• Contingent Valuation is a technique that has been used by natural resource and environmental economists since the 1970s to estimate value.

• Requires analysis of a survey to determine how much respondents are willing to pay for a service, utility or resource.

• Pearce & Turner (1990) suggest that to examine the negative effect or damage caused by an environmental project is to measure the total economic value lost.

• Pearce and Turner (1990) suggest using a bidding process, where the surveyor suggests the first bid, as a starting point. The starting point is then increased or decreased accordingly to a point where the respondent would be willing to pay, or willing to accept the development. Bias may be introduced to the survey through the surveyor setting the opening bid.


• Mundy and McLean (1998) list eight common criticisms of the method as;

• “Monopoly money. The reported willingness to pay to improve or protect natural resources is significantly greater than actual willingness to pay.

• Extreme hypothetical nature of the questions.

• Embedding. The value given for part of a resource was essentially the same as for the entire resource.

• So many spills – so little money. Responses to CV studies seem unrealistically large in view of the many problems for which individuals might be asked to contribute money. Few CV studies remind respondents of the budget constraints under which they must live.

• Respondents pre-existing bias.

• Funny money. CV studies may improperly determine the extent of the market.

• Warm glow. The respondents in the studies may be expressing their public support for (or the “warm glow”) associated with charitable giving rather than indicating their willingness to pay for the program in question.”


Research Questions

1. What is the residents’ perceptions of the HVOTLs (lines and towers)?

2. What effect does the HVOTLs have on property prices?

3. Are residents willing to pay to have the HVOTLs removed?



Perception

• 72% believe the HVOTLs affect the property value

• Of the 72% the majority who believed the value was affected.

– the effect was negative 10% of potential market value.

• The further the respondent was from the HVOTLs the more they believed the removal would increase property values.

• 74% believe reducing the multiple sets of lines to one set, would make no difference.

• Changing the style or height of the towers makes no difference to perception.


Regression analysis

Independent variables

• Distance to Tower and/or line is the variable trying to determine

• Reciprocal of distance

• Floor area

• Land area

• Condition

• Construction type

• Location

• Age of building

• Year of sale

• View of HVOTL

• Dependant variable = Sales price adjusted by CPI


• Used a control group approximately 1 kilometre away

• Sales within 400m of HVOTL

• 860 sales within 200 metres

Results are consistent with other studies undertaken by author


Willingness to Pay – Contingent Valuation

• Postal survey

• Face to face interview

Whether respondents were willing to pay to have the HVOTLs removed?

How much are they willing to pay?

Are they willing to pay to have the HVOTLs partially removed e.g. 4 lines into 1.


Respondents comments

• Towers and lines are ugly to look at.

• Lines are noisy.

• Lines create interference with Television and radio reception.

• There is a fear of health problems created by the presence of the lines.

These comments are consistent with the reports made in all the literature that refer to perception studies.


Conclusion

• Perception– 72% of respondents believe there is a negative effect– negative 10% off potential market value– Distance had no effect

• Regression Analysis– Negative 20% under or within 10 metres– Negative 5% within 50 metres– Negligible at 100 metres

• Willingness to Pay– Lump sum contribution 80.5 percent oppose– Monthly bill payment 73.8 percent oppose– Capital gains percentage 67.7 percent oppose


• The perception by residents is not consistent with what they will pay to remove the ‘effect’, or a reduction in the purchase price they pay.

Documents

Contingent valuation: how accurate is it when valuing impacts on property values? Judith Callanan RMIT University Melbourne, Australia