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What’s the value of undeveloped land?

Janet Babin Jan 2, 2008

What’s the value of undeveloped land?

Janet Babin Jan 2, 2008


KAI RYSSDAL: The art of setting consumer prices is in most cases more of a science. For manufactured goods it’s a fairly straight forward process. The costs of production plus a profit margin. For commodities that we get from nature, say oil or gas, prices are a bit more speculative. Today’s a great example of that. But what about the price of nature itself? As forests and wetlands continue to shrink, some local governments are turning to the market for a solution. From the Marketplace Innovations Desk at North Carolina Public Radio, Janet Babin reports.

JANET BABIN: When someone builds an apartment complex or office building we, the public, can usually find out a lot about it — How much it’ll cost, how much the contractor will make, how many tax dollars the project will eat. There are drawings, models, price estimates.

But here’s what we don’t usually find out: how much the land would have been worth if it had been left alone. And that’s what New Jersey wanted to know. For years, the state said yes to developers’ plans. But now, it’s running out of space.

Bill Mates: We lose about 50 acres a day of natural lands to development of one sort or another.

That’s Bill Mates with the New Jersey Department of Environmental Protection. Instead of just blindly saying yes to new development, the state commissioned a report to find out how much New Jersey’s land is worth, just sitting there, undeveloped.

To come up with the numbers, the report considered natural capital like forests, wetlands, beaches and open space and the services they provide — like storm protection, soil-erosion prevention, and wastewater treatment. It also considered minerals and agricultural products.

Turns out, New Jersey’s natural assets are worth a lot:

Mates: At least $26 billion a year worth of goods and services. And that $26 billion a year is worth about $850 billion in present value terms.

Present value is the amount of money you’d have to park in the bank right now, at 3 percent, to get $26 billion a year in income. In this case income is equivalent to the goods and services that New Jersey’s land is providing its citizens.

The state conducted the study with help from Robert Costanza and researchers at the Gund Institute at the University of Vermont. Costanza says natural resources are usually left out of market equations, so traditionally they’re not valued. But he argues they should be.

Robert Costanza: You go to a state park, a national park, you have a great time, you may not pay anything for that. There’s no market transaction involved. But you benefit fairly directly from that recreational amenity.

No argument here from 3-year-old Lucas and his extended family. They were playing in the water at this North Carolina State Park. Lucas’s grandmother Jane Eisenberg grew up in Hoboken. She like’s New Jersey’s new land-valuation plan. She says now Lucas’s generation can know exactly how much natural resources, like this park, are worth. And that could help preserve them.

Jane Eisenberg: My generation, back in the dark ages, we didn’t really think much as children about the fact that these rivers and mountains could go away.

Babin: Well, I mean, you know, you guys had a lot going on.

Eisenberg: This is true. We thought when they were going to go away it would be with the big one!

Now the big one is not so much a nuclear threat, but sprawl that pressures resources. Some economists, hough, don’t think pricing a state ecosystem will ease that pressure. In fact, David Wysse with Standard & Poors says the valuation could make natural capital more vulnerable because a price tag implies that it’s for sale.

David Wysse: That’s one of the worries. If you say the value of this endangered species is $2 million, and somebody wants to build a nuclear plant there and says here’s $2 million, we’re building the plant.

Wysse calls the land valuation a subjective, academic exercise. But it’s not to New Jersey’s Bill Mates.

Mates: To us it’s anything but an academic exercise. The findings of this report are already being cited by both environmentalists and developers in discussions about land-use decisions.

Decisions that could save money — like whether to invest in a wastewater treatment plant or maintain wetlands instead. A move that might accomplish the same public service — clean water — with fewer tax dollars.

New Jersey’s had inquiries about the report from communities in Michigan and Pennsylvania, and from the federal Environmental Protection Agency. But so far, the state has yet to use its report to challenge a developer’s plans.

I’m Janet Babin for Marketplace.

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