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 But is that value shared by home buyers in
developing countries? University of Illinois economist Hope
Michelson looked at property transactions in Kenya near what she
assumed would be a highly desirable location and found the real
estate mantra, “location, location, location,” wasn’t
necessarily the guiding principle there.
Here is a short video of Hope Michelson describing the project
and findings.
“A rich literature in environmental economics has studied how
property values change within area, or basin, of some kind of
investment,” says Michelson. “A house or a piece of property has
a bundle of characteristics. We can’t know how people value a
new amenity, such as a beautiful park built just down the
street, because there isn’t a price for it. But proximity to the
park is one of the characteristics in the bundle that homeowners
purchase when they buy a house close by. Crudely, if two
properties are alike in every other way, we can look at the
difference between those values and put a value o that park or
other amenity.”
In this case, the amenity in Sauri, Kenya was living in the area
around one of the towns in the Millennium Villages Project—a
large anti-poverty effort that began in 2005 and was based out
of Columbia University’s Earth Institute, where Michelson was a
post-doctoral researcher. The project operated in 12 villages in
10 countries in Sub-Saharan Africa, investing in education,
infrastructure, healthcare, and agricultural systems with the
goal of using an integrated project and investment approach to
achieve the Millennium Development Goals in the sites—including
eradicating extreme poverty and hunger by 2015. The project is
area-based, meaning that households living within a defined
geographic area are the immediate beneficiaries of, for example,
fertilizer subsidies, improved schools and health clinics, and
access to project agricultural extension and health workers.
“We thought, with all of the money invested into these
Millennium Villages to improve health, infrastructure, and
education, as well as all of the publicity and project activity,
people might want to move into that area so they could access
the improved amenities,” Michelson says. “In areas with
functioning land markets, shouldn’t we see some change in the
prices of the properties there?
“It’s a relatively obvious thing to do, but no
one has ever done it in developing countries or with respect to
evaluating how a project impacts households’
behavior—specifically household decisions about whether to live
in a project area. Do people seem to be trying to move into the
area and are they placing a higher value on a property based on
its location inside or near the area of project activity?”
The analysis required good land market data. She and her
collaborator hired a local resident to visit the local land
office and transcribe all of the land transactions including the
locations and the dates beginning in 1999 and through 2013. This
gave them data starting about five years before the Millennium
Village project began.
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“We didn’t see much of a price change over time in village
properties that we can attribute to the project,” Michelson says.
“There was a huge amount of monetary investment in these villages, a
huge increase in public goods provision by the project. To some
extent that’s good; poor people aren’t being pushed out by any
inflationary pressure on land being caused by the project.
“But why didn’t the land prices go up? It may be that the benefits
of the village were available to those living nearby. If they could
come in and get healthcare, for example, maybe that was just as good
as living directly in the project area. There were certain subsidies
that only people living inside the area received. But it could be
that people weren’t convinced that the benefits would be sustained,
so why move?”
Another theory is that residents nearby are holding onto their land
to see if property values go up and then sell. “They’re waiting
because they aren’t sure what the true value of their land will be.
So perhaps if we came back in another 10 years, we’d see a
difference,” Michelson says.
Michelson says she sees value in the technique they used to learn
how people decide where they want to live with respect to large
development programs.
“This method has a lot of promise to complement expensive,
big-impact evaluations in places where the land markets are thick
enough and you can access reliable historical data on land
transactions,” Michelson says. “So, in some ways, the results are a
little unsatisfying, but in another, it’s very intriguing. And the
analysis is a nice demonstration of the way that such a method might
complement standard methods of impact assessment elsewhere.”
The study, “The Millennium Villages Project and local land values:
Using hedonic pricing methods to evaluate development projects,” is
published in World Development. The paper is authored by Hope
Michelson and Katherine Tully. Funding for the work was provided in
part by Earth Institute at Columbia University.
Hope Michelson is an assistant professor in the Department of
Agricultural and Consumer Economics in the College of Agricultural,
Consumer and Environmental Sciences at the University of Illinois
and a member of the Division of Nutritional Sciences.
[Debra Levey Larson
University of Illinois
College of Agricultural, Consumer and Environmental Sciences] |
