Does protecting the habitat of endangered species depress land values and building activity? Not in the ways you might think.
The most significant piece of legislation that grants protections to the habitats of plant and animal species turned 50 recently. Many people take such a milestone birthday as an opportunity to reflect on our history—and in a new paper led by Eyal Frank and coauthors, we do just that.
Why protect species habitat in the first place? The monitored population sizes of mammals, birds, fish, reptiles, and amphibians have dropped by an average of 68 percent over the past 50 years. Of the four million species assessed worldwide, a whopping 25 percent are considered threatened and face extinction. Although a certain degree of extinction is expected in natural systems, current extinction rates are estimated to be two to three orders of magnitude larger than what is considered natural.
Habitat loss is, by far, the most significant driver of extinction; humans have altered 75 percent of the land surface on Earth. Hence, the protection of species habitat has become the most important policy tool globally to prevent species extinction, especially as climate change is expected to increase pressure on habitats and extinction risk. An effort under the auspices of the United Nations is underway to double the area of protected land to 30 percent globally. But such efforts repeatedly are met with opposition from private landowners and developers, who are concerned about the potential constraints on land development and the subsequent effects on property values, as evidenced by the hundreds of lawsuits brought by developers against US government agencies, along with public hearings decrying the “destructive cost of the Endangered Species Act.”
The Endangered Species Act of 1973
In our recent working paper, we examine the economic consequences of the Endangered Species Act of 1973 (ESA)—considered by some as the most important US law protecting biodiversity, which has served as a blueprint for conservation legislation in Australia, Canada, Europe, Asia, and Latin America. In the United States, species gain protections under the ESA after either the US Fish and Wildlife Service or the National Marine Fisheries Service conducts a review process and finds that a species warrants protection. This review process can start due to internal instigation, a petition by a third party, or a court ruling following an action-forcing lawsuit. The relevant agency issues a “biological opinion” based on the best available scientific knowledge. When it first appeared, the ESA and its implementation were controversial, rising all the way to the Supreme Court, which found, “The plain intent of Congress in enacting [the ESA] was to halt and reverse the trend toward species extinction, whatever the cost.” The ESA touches most of the land area in the lower 48 states (Figure 1).
Figure 1. Land Affected by the Endangered Species Act Listings
Credit: Source: Author calculations based on data from the US Fish and Wildlife Service
US agencies have two ways of providing species with protections: species listings and critical habitat designations. Before a species can be protected under the ESA, it must be added to federal lists of endangered and threatened wildlife and plants. A species is included in one of these lists (i.e., a species gets “listed”) once it is determined to meet the ESA’s definition of endangered or threatened. The type of listing is a function of scientific review alone, which is conducted by wildlife biologists at the agencies. Economic factors cannot be taken into account at this stage.
Some listed species have an associated critical habitat designation for all or some of their biological habitat. Critical habitats are specific areas that are designated as essential for the conservation of an endangered species. These critical habitat designations might lag behind the species listing, often by a matter of years. Designations cannot, however, preempt a listing.
Given the extensiveness of this legislation and the significant levels of controversy it has raised among developers, we economists naturally want to know if the ESA has negatively affected land markets. And if so, to what extent? Our recent paper seeks to answer these questions for all protected lands across the country and throughout the lifetime of the 50-year-old legislation.
Extensive New Data Set
To examine the impacts of species listing and critical habitat designation on property values and building activities, we assembled the most comprehensive data set on the spatial extent and type of ESA land restrictions for more than 900 species in the contiguous United States, going back to the beginning of the act. Although studies have been conducted on single species in specific land markets, no study has examined the full provisions of the ESA across all land markets in the United States.
To causally estimate the economic impact of the act, we matched these data using space and time identifiers to the largest available data set on housing and land transactions. Our study goes beyond simply looking at housing prices—indeed, our work fully characterizes both the overall impacts of the ESA and the heterogeneity of those impacts, because we added significant data on species-level lawsuits; building permits from the US Army Corps of Engineers; county-level jurisdictions; and, for the first time among such studies, the individual nationwide building-permit level.
What do we find? Five main things.
1. Does the observed number of transactions for land or housing differ just inside versus just outside the border of the protected areas before and after the imposition of listings and designations?
We show that the number of sales in areas eventually designated as critical habitat (perceived as the most stringent restriction of the ESA) is massively lower than those just outside these areas both before and after designation. This result suggests that the US Fish and Wildlife Service draws these boundaries by proactively taking into account local housing market characteristics, which it is permitted to do. We also show that this devaluation is not the case for the biologically determined designations of species habitat, where the agency does not get to take economic considerations into account. As economists, we find these results reassuring because we conclude that Homo economicus is well represented in the agencies.
The running buffalo clover is protected under the Endangered Species Act.
2. Do restrictions on land development in the biologically determined protected areas lead to changes in the valuation of housing and land for properties located inside, outside, and proximate to the border?
Our paper shows convincingly that the effects of the ESA on housing prices inside versus outside species habitats and critical habitats are not statistically different from zero. For species habitats, this zero is precisely estimated and persistent. For critical habitats, the effect is noisier, but we can rule out the much larger impacts that have been found by some case studies. While some evidence suggests an impact for single species and certain types of land (e.g., vacant areas), we find that, across all species, this impact averages out to a “null effect.” Heterogeneity matters, of course, and we’ll get to that below.
3. Does the designation of critical habitat have measurable impacts beyond those caused by the biologically determined species listing?
Note that the US Fish and Wildlife Service considers critical habitats as “areas of habitat believed to be essential to the species’ conservation” but does not see designation as an additional level of protection. Our paper shows robust evidence of an appreciation in the value of homes within two kilometers of areas deemed as requiring the strongest protections (i.e., critical habitats) just outside the boundary, but not inside. This result supports the idea that “backing up to open space” is valued by homeowners and is consistent with a long history of resource economics showing that individuals value open space.
The pygmy owl (left) and monarch butterfly (right) are protected under the Endangered Species Act.
4. Do locally controversial species listings or habitat designations have measurably different effects, relative to species and transactions for land and housing in other locations that have not seen public controversy over the protections?
Here, we are thinking of examples like the controversy in Arizona around the pygmy owl or the ongoing debate around the monarch butterfly (both pictured above). The story here is more complicated, but interesting: Our paper shows massive heterogeneity in impacts on the land market at the species level, suggesting that the external validity is severely limited for studies that are related to single species and markets. The studies all average out to zero impact, as stated above, but that does not mean no local effects of species protection exist.
5. Does the listing of a species under the ESA have a measurable effect on the frequency and timing of the issuance of building permits and habitat conservation plans?
Using both aggregate and micro-level data on building permits, we show that the ESA does not appear to affect permitted building activity in more restricted land markets. Additional analysis shows that the Army Corps of Engineers issues more complicated permits and denies a larger share of permits in counties that have greater shares of land protected by the ESA. We also documented and quantified the burden imposed on developers in terms of the time taken to approve habitat conservation plans and heterogeneity in this amount of time. For a small share of species, we find a significant increase in the amount of time between application for and issuance of building permits.
Conclusions
These five findings are interesting and important when trying to think about how species protections under the ESA affect land markets. That said, one of the most important takeaways is that things are complicated.
What our paper shows is that, as far as the economic impacts of the ESA on land markets go, the arguments of protection proponents can be right for many places; yet, arguments against protection can be just as valid in other land markets. The importance of papers that study individual species listings and designations is validated by our observation of several cases in which prices respond meaningfully to ESA protections; however, those estimates need to be interpreted against a distribution of treatment effects, which we find is more muted in terms of how ESA protections affect prices.
Ineffective policy decisions could arise through using the average impact of the ESA from this paper when assessing the impacts of a single species that’s under consideration in a specific land market. For local decisions, understanding species characteristics and local land markets is key. The paper does, however, provide an approach—and the data—that would facilitate this specific understanding of local conditions.
