Tax Increment Financing for Optimal Open Space Preservation: an Economic Inquiry

preservation of open space. For example, based on a hedonic study on single-family
home sales in Portland, Oregon, Netusil et al. (2000) find open space could increase
property value in high value neighborhoods and they further speculate that funding for
the development and maintenance of open space may be generated simply by their
preservation, that is, self-financing. An earlier illustration of the same proposition
emerges from the construction of New York’s Central Park. When the designer,
Frederick Law Olmsted, was asked how the city could pay for the park, Frederick
responded that the presence of the park would raise property values and the extra tax
revenue generated would easily repay the construction costs. A subsequent empirical
investigation on the relationship between the park and real estate value verified his point
and was widely disseminated (see Fox 1990).

The idea that acquisition of open space may be financed by preservation seems
promising since a large literature has demonstrated the positive effect of open space on
local property value (see McConnell and Walls (2005) for a review). There also have
been anecdotes showing that markets in certain circumstances can spontaneously provide
open space from the same motivation. For example, in a study on market provision of
open space, Heal (2001) presented two examples. The developer of Spring Island off the
coast of South Carolina built only 500 high-value properties instead of constructing the
5,500 homes permitted, and conserved the balance of the land to raise the value of the
homes sufficiently maximizing their profit. Similarly, hunters in Montana, concerned
with the effect of summer home development, borrowed money to buy the land and
finance the construction of a small number of luxury homes. The hunters placed a
conservation easement on the remainder of the land, reserving the right to hunt on it

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