This report uses census data to analyze the price effects of superfund site clean-up, inclusive of both direct price effects and indirect effects through clean-up's effect on neighborhood demographic transitions and reinvestment in the housing stock. FRC Report 11

Brett Baden

Douglas J. Krupka

Douglas Noonan

English

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Neighborhood Dynamics and Price Effects of Superfund Site Clean-Up

This report uses census data to analyze the price effects of superfund site clean-up, inclusive of both direct price effects and indirect effects through clean-up's effect on neighborhood demographic transitions and reinvestment in the housing stock. FRC Brief 11

  October 2005, Number 113   NEIGHBORHOOD DYNAMICS AND PRICE EFFECTS OF SUPERFUND SITE CLEAN-UP   The existence of hazardous waste sites is an important problem in many older, built-out urban areas.  Several authors have shown that property values around these sites are depressed, and are usually surrounded by undesirable neighborhoods.  The reasons for this collocation are relatively straightforward: hazardous waste sites are unpleasant neighbors, so properties in the adjoining areas must sell for less.  This combination of low prices and dirty environment attracts residents who value clean environments less, usually because they are poor.  The problems with large concentrations of poor residents are well documented, and these concentrations further lower property values.   Local governments have looked to hazardous waste site clean-up as a way to improve property values.  Clean-ups of Superfund sites are performed under the guidance of the Environmental Protection Agency, through its authority under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).  The costs of such remediation activity have been widely publicized and easily accounted, but the benefits have been harder to quantify.  Of considerable interest to local governments is the effect of clean-up activity on local property values, since property taxes are these governments’ main revenue source.  Increases in property  values are also of academic interest, since they are the primary measure that urban and environmental economists use in quantifying the benefits of such remediation. Most estimates of the Superfund site price effect use data on house sales collected before the clean-up activity has finished and estimate a price effect based on these data.  From this estimate, a benefit to clean-up cost can be computed.  This estimate may be biased, however, if unobserved characteristics of the area (which would not change following clean-up activity) also affect prices.   Some studies correct for this by examining how property values change when clean-ups occur.  These studies are preferable, since they offer both a better estimate of the price effect of an existing site, and a direct measure of the benefit of site remediation. We contend that these standard measures of this price effect are not appropriate because the clean-up of a site will also induce neighborhood change.  Because different families may be more willing to live in an area after remediation, they will out-bid the area’s original residents for the homes near the site, and thus the composition of the neighborhood will change.  Since neighborhood composition has been shown to have strong effects on real estate prices, such  neighborhood   transition   will   create   indirect   effects of the site remediation.  Similar indirect effects will exist because of reinvestment in the area surrounding the clean-up site. Census data is used to investigate the effect of site remediation on median housing values, housing stock characteristics and neighborhood composition.  We compute the direct, or “pure,” price effect of the clean-up, and find that cleaning up a Superfund site directly increases home values by 2 to 5 percent.  This is consistent with the rest of the literature.  However, we are able to go further and compute the indirect effects, which we find to be quite substantial.  As much as 50 percent of the total effect of an EPA clean-up comes through the indirect channels: induced neighborhood transition and housing reinvestment or construction.   These results have several important implications.  First, they inform our interpretation of the environmental justice of the process by which poor residents are exposed to hazardous wastes.  In our most flexible models, we show that after clean-ups, richer families tend to move into the remediated areas, pushing the poorer original residents out, possibly to other dirty areas.  This shows that targeting environmental remediation towards favored groups will be at least partially offset by these groups sorting out of the area that has been cleaned-up.  If the original poor residents are mostly renters, the clean-up will have benefited them very little or even hurt them by forcing them to undertake costly moves. Second, the results offer a better understanding of the likely results of environmental remediation on the surrounding areas.  Remediation not only makes the area more desirable (thus raising home values), but also induces further investment and immigration of more “desirable” populations.  Both of these induced effects will further increase home values.  These indirect effects are substantively important.  At least some portion of this reinvestment and relocation will probably come at the expense of other areas, so the indirect effects should be used only cautiously in cost-benefit analysis.  However, local governments interested in the likely effect on property value (and property tax receipts) will care less about these offsetting effect in other areas. Our approach is to observe census block groups in 1990 and 2000, noting which block groups were in the vicinity of a Superfund site clean-up.  We are able to estimate a system of equations (as opposed to the simpler one-equation models used in much of the literature) taking into account the causal feedback between housing values, housing stock investment, neighborhood composition and EPA clean-ups.  From these estimates, it is possible to compute both consistent estimates of the “pure” price effect of the clean-up, and the indirect effects.  Most of the literature focuses on the pure effect.   With our system of equations approach, we are able to go further and compute the indirect effects.  As noted above these effects are found to be quite substantial.  The indirect effects are also quite stable across model specifications.  ABOUT THE AUTHORS Douglas Noonan is Assistant Professor at the School of Public Policy at Georgia Institute of Technology.  Dr. Noonan's main interests are in the fields of environmental and urban economics, and his current research focuses on human responses to environmental variability. He earned his Ph.D. at the University of Chicago. Douglas Krupka is Assistant Professor in the Department of Economics, Georgia State University.  His research interests are in residential mobility and migration, residential choice, neighborhood transition and valuation of area environmental characteristics.  He received his Ph.D. from the Harris Graduate School of Policy Studies, University of Chicago. Brett Morgner Baden is Assistant Professor of Urban and Environmental Policy at Tufts University.  He is an environmental and urban policy economist who is interested in questions of growth, change, and the standard of living in urban environments.  He holds a Ph.D. in Public Policy from the University of Chicago.                ABOUT FRC  The Fiscal Research Center provides nonpartisan research, technical assistance, and education in the evaluation and design of state and local fiscal and economic policy, including both tax and expenditure issues.  The Center’s mission is to promote development of sound public policy and public understanding of issues of concern to state and local governments. The Fiscal Research Center (FRC) was established in 1995 in order to provide a stronger research foundation for setting fiscal policy for state and local governments and for better-informed decision making.  The FRC, one of several prominent policy research centers and academic departments housed in the School of Policy Studies, has a full-time staff and affiliated faculty from throughout Georgia State University and elsewhere who lead the research efforts in many organized projects. The FRC maintains a position of neutrality on public policy issues in order to safeguard the academic freedom of authors.  Thus, interpretations or conclusions in FRC publications should be understood to be solely those of the author.  For more information on the Fiscal Research Center, call 404-651-2782.   RECENT PUBLICATIONS  Neighborhood Dynamics and Price Effects of Superfund Site Clean-Up  This report uses census data to analyze the price effects of superfund site clean-up, inclusive of both direct price effects and indirect effects through clean-up's effect on neighborhood demographic transitions and reinvestment in the housing stock.  (October 2005).  Perfect Competition, Spatial Competition, and Tax Incidence in the Retail Gasoline Market.  This report uses monthly gas price data for all 50 U.S. states over the period 1984-1999 to examine the incidence of state gasoline excise taxes.  (September 2005)  The Research and Development Tax Credit for Georgia.  This report describes the existing Georgia State R&D tax credit and explores the implications of modifying its current design.  (September 2005)  Cooperation on Competition:  The Multistate Tax Commission and State Corporate Tax Uniformity.  This report explores how interstate uniformity of state corporate income taxes has varied over time, the role played by the MTC, and how likely it is that uniformity will be achieved.  (August 2005)  Tax Revenue Volatility and a State-Wide Education Sales Tax. This brief examines issues of revenue source stability raised by proposals to shift K-12 education costs from local property taxes to a state-wide sales tax.  (June 2005)  Accountability for Economic Development Incentives in Georgia.  This report identifies Georgia's major economic development incentives and other forms of public finance support and calls for a comprehensive evaluation of public expenditures in this area.  (July 2005)  Teen Childbearing and Public Assistance in Georgia.  This brief examines the link between teen births and welfare.  (May 2005)  The Link Between Teen Childbearing and Employment in Georgia.  This brief analyzes teen births and employment of teen mothers.  (May 2005)  What Georgians Are Thinking About Taxes III.  This brief is the third of three briefs reporting on telephone surveys of Georgians.  (April 2005)  What Georgians Are Thinking About Taxes II.  This brief is the second of three briefs reporting on telephone surveys of Georgians.  (April 2005)  Fiscal Capacity of Counties in Georgia.  This brief examines the fiscal strength of Georgia’s counties.  (April 2005)  Status of Health and Pension Benefits for Employees of the State of Georgia in 2004  This report analyzes the Health and Retirement Package offer to employees of the State of Georgia.  (April 2005)  What Georgian’s are Thinking About Taxes I.  This brief is the first of three briefs reporting on telephone surveys of Georgians.  (March 2005)  A Historical Perspective of Georgia’s Economy.  This report chronicles the history of Georgia’s economy from the 1950s to the present and provides an outlook for the future growth areas in Georgia.  (February 2005)  How Different are Sales Tax Rates Along Georgia’s Border?  This brief provides a comparison of sales tax rates in counties on Georgia’s borders.  (January 2005)  An Initial Evaluation of a Proposed Statewide Education Sales Tax. This report provides a preliminary analysis of a proposal to replace education property taxes with a statewide sales tax.  (December 2004)  Financing Georgia’s Future.  This report explores how Georgia finances its expenditures through various revenue sources and compares Georgia’s taxes across states and over time on multiple dimensions.  (December 2004)  The Advantage of Accessibility to Goods and People:  Transportation and Georgia’s Economic Development This report describes how transportation affects Georgia’s economic development at present and what is likely in the future, and makes a set of recommendations for the direction of state transportation policy.  (November 2004)      For a free copy of any of the publications listed, call the Fiscal Research Center at 404/651-4342, or fax us at 404/651-2737.  All reports are available on our webpage at: //frc.aysps.gsu.edu/frc/ index.html. 

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Neighborhood Dynamics and Price Effects of Superfund Site Clean-Up

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