By Lori Saldana
Until birds and bees start paying rent, real estate appraisers - and environmentalists will have a hard time figuring out how much to pay to preserve a piece of wildlife habitat. But to economists, the matter is less of a mystery. That is because economists really don’t care as much about the price of the land as they do about what happens when people pay a little - or a lot - for it.
It makes a big difference.
Ed Balsdon- an economics professor at San Diego State University- has written a paper where he describes how calculating the value of land plays an important role in preserving critical habitat. It is a role that might surprise some environmentalists who believe the cheaper the land, the more of it we can acquire. It turns out the economic reality is just the opposite.
A case in South San Diego provides a good example. Recent news stories tell how a property owner in the Otay Ranch planning area is required to buy a specific piece of land to permanently set aside open space as part of the county’s Multiple Species Conservation Program (MSCP).
But some appraisers are having a hard time setting a price for this land because it won’t generate rent, and there are not many willing buyers and sellers to compete for the best deal. In this case, all we have is one party compelled to buy, and another only marginally interested in selling.
Without comparable values and a free market - two things missing here - any estimate of price is little more than guesswork.
And so, the parties have agreed to submit the price of the land to what is essentially a private condemnation trial. But more than just settling a dispute between two warring property owners, the results of this decision could have a major effect on the supply of important habitat in San Diego- habitat needed for completion of the Multiple Species Conservation Program.
According to news reports, the buyer claims he is in an unfair monopolistic position that has left him at the mercy of a fellow landowner. He claims the owner may charge whatever he wants for the land because the buyer is legally compelled to acquire it. (If you think it strange that a landowner would agree to buy a piece of land without first knowing the price, you are right.)
Because the buyer believes the habitat is worthless, he is asking the County Board of Supervisors to relieve of him his obligation to buy it because (he claims) the asking price is too much. The County Board of Supervisors said no - and thus averted what could have been a major disaster for the MSCP.
The potential buyer then tried to convince the Board of Supervisors that a high price on this land would raise the price on similar transactions in the future, thus inflating the price of open space. This, he argued, would make it more difficult to acquire land for future open space preserves in the MSCP and other areas.
This is an intuitive, but wrong, assumption, according to SDSU’s professor Balsdon. And the future of open space in San Diego depends on us recognizing why.
The reason we don’t have enough open space and wildlife habitat in San Diego is simple: Property owners don’t have any incentive to provide it. Call it a market failure if you wish, but the fact is, low prices for open space and habitat are the main reason we have such a shortage of it. And until that changes, open space will continue to disappear, replaced by other more lucrative uses such as strip malls or industrial parks.
In the past, environmentalists have tried a “command and control” method to create and preserve habitat: i.e., just figure out a way to take it during the development process without putting a price on it. How well that has worked depends on how well you think open space has been preserved in San Diego. Most people would say ‘not very well.’
Like it or not, this has been our de facto policy. And today it is playing out again at Otay Ranch. Some might argue that in the short term of a few months, a low (or no) price today will create more open space tomorrow. But in the long run, too low a price sends a signal to landowners throughout San Diego that open space has no value - and what could be worse for people who care about preserving open space? Nothing.
In his paper, Professor Balsdon reminds us that the problem is not that we do not value open space. It is just the opposite: we value it, but don’t know how to put a price on it. And so, people who own the habitat cannot benefit from it.
Balsdon points out that under the incentive model, land prices could be the most important reason to conserve open space. If the price of this land increases, competing uses (strip malls) begin to look less attractive, and thus more land becomes available for open space mitigation. Lower prices would have the opposite effect, leading to less land for mitigation, and more land for marginally profitable development projects.
This is a very real choice: Strip malls or salt marshes? Industrial development or indigenous plants? In Southern California, those decisions depend more than anything on price. And that price in San Diego will be first set at Otay Ranch.
Environmentalists and economists are beginning to realize that low prices for habitat have been the most expensive policy of all. They are recognizing that if we truly value open space, and wish for it to be treated dearly, then that is the way it must be priced.
And any appraiser can tell you that.
(Saldaña is a writer, teacher, environmental activisit and the US Chair for the Advisory Council Border Environment Cooperation Commission.)