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Sunday, January 18, 2015:

Do God-botherers lift residential property values?

By Gavin R. Putland.*

Suppose that a certain facility, e.g. a childcare centre or a church, would take up a small percentage, say x percent by value, of the usable land in a greenfield residential development. And suppose that the presence of this facility, being desirable, would add y percent to the selling price of the average lot in the rest of the estate. Then, roughly speaking, if y is greater than x, it would be profitable for the developer to donate the land needed by the said facility, if the donation would make the difference between getting the facility and not getting it.

But do these conditions hold?

In the case of childcare centres, I am not aware of any statistical studies of the effects on neighbouring property values, although there is plenty of anecdotal evidence of NIMBY opposition to the establishment, expansion, or continuation of childcare centres, due to alleged noise and traffic. One would think, however, that the effect on property values depends on the demographics of prospective buyers in that neighbourhood: where the typical buyers are parents of young children, the effect would be more positive than where the typical buyers are retirees or DINKs.

In the case of churches and other places of worship, a number of statistical studies have been published, and the findings are mixed.

Do, Wilbur and Short (1994) found that churches negatively affected property values out to a distance of 850 feet. But this study, as Carroll et al. (1996) pointed out, was done in a region where churches were comparatively dense (Chula Vista, CA). Carroll et al. took their data from Henderson and Green Valley, near Las Vegas, where churches were much thinner on the ground, and found that churches positively affected property values: as one moved away from the “neighborhood church”, property values fell at a decreasing rate, out to a distance of 5.5 miles. Being one mile from the church, instead of 100 feet away, reduced the property value by 5.5 percent. Most impressively, the positive effect on property values was greater for larger churches — whereas if churches were primarily nuisances due to noise and traffic, one would expect larger churches to have larger negative effects on values.

Taken together, these two studies seem to imply that churches, in terms of economic externalities, are net amenities where they are scarce, but net nuisances where they are dense — which is not at all surprising.

What about non-Christian places of worship? In Turkey, Topcu and Kubat (2009) found that proximity to “religious institutions” (apparently meaning mosques) was positively correlated with property values — almost as strongly as proximity to primary schools, but far less strongly than (e.g.) proximity to the CBD.

The USA is of course overwhelmingly Christian, while Turkey is overwhelmingly Muslim. In a religiously divided country, one might expect the presence of any sort of place of worship to be more controversial, and its effect on property values to be less positive. Hence is interesting that in Lagos (Nigeria), Babawale found that churches, especially larger ones, had a negative effect on residential rents. But the high density of churches “planted indiscriminately within residential neighborhoods” may also have contributed to this result.

One can imagine a situation in which the positive effect of a church on property values, due to scarcity, would be unusually strong. Suppose that a particular type of church, where “type” may refer to denomination and/or other qualities, is in short supply across a whole metropolitan area. Then the presence of such a church in a greenfield development is likely to attract property buyers who need that type of church, and to attract them in large numbers relative to the size of the development. This would amplify the uplift in property values. Of course it also helps if the “type” of church is not so alien as to scare off prospective buyers who do not share the same need.

The opposite situation arises where a new church of a more common “type” is built in a long-established neighbourhood. While there is presumably a need for the church, it is too late for that church to become the defining feature of the neighbourhood for a large number of prospective property buyers. Hence one would think its effect on property values would be muted. Indeed, Thompson et al. (2012), unlike earlier authors, focused exclusively on new religious structures using pre- and post-construction data, and found no effect on surrounding property values.

So, would it be profitable for a greenfield developer to donate land for a church? The short answer seems to be “It depends.” But it would be surprising if there were not some cases in which that translates into “Yes.”

This blog has long advocated land-value capture — that is, financing infrastructure (e.g. new transport routes) by recycling some of the uplift in land values caused by the infrastructure. Usually this process requires the involvement of governments, because only governments are in a position to claw back the uplifts over a sufficiently wide area (using either the taxation power or the land-titles power). But, as the above examples suggest, there may be some cases in which the necessary “recycling” can be done entirely within the private sector.


* Disclosure: The author is a God-botherer!

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