Neighbourhood Composition and Residential Land Prices: Does Exclusion Raise or Lower Values?

Abstract

Hedonic price models are used to explore the degree to which land-use and racial composition, used as outcome proxies for local zoning practices, influence residential land values in Santa Clara County, California. Fiscal pressures have prompted many California communities to zone on the basis of tax-yield potential, especially in fast-growing settings like Santa Clara County. Controlling for variables related to job accessibility as well as proximity to regional transport infrastructure, the analysis shows that indicators of land-use diversity and jobs-housing balance generally correlate with high residential land prices. While the fiscal instincts of Californian municipalities is to shun housing in favour of commercial development and thus to create imbalanced land development patterns, this research suggests these fiscal advantages are partly offset by lower land values and thus lower property tax intake. Racial diversity, on the other hand, lowered residential property values, even when controlling for neighbourhood factors like average household income. This finding suggests that, to the degree that local zoning responds to land-market forces, exclusion in residential settings is more a product of racial than land-use composition. As long as land markets attach either values or disbenefits to land-use mix and racial diversity, market-sensitive zoning policies that reinforce these outcomes will be likely to prevail, particularly in buoyant real-estate markets like Santa Clara County.

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