Effects of Zoning on Housing Option Value.

Topics: Real estate, Property, Hedonic regression Pages: 13 (4388 words) Published: April 19, 2011
The 2011 New Orleans International Academic Conference

New Orleans, Louisiana USA 2011

Effects Of Zoning On Housing Option Value
Prathamesh Muzumdar, Illinois State University, Normal, USA Abstract The research explores the subject of zoning effect on price value of a house in a certain designated zone. Zoning is defined as a land under planned use. This results in price value of the land. As the area of the land decreases an increase in price occurs. This research does not specify the magnitude of a certain unit by which a housing price will increase or decrease but it estimates the housing option value. This research helps the policy makers to improve long term policy decisions. This research will showcase zoning effects on housing option value for the specific zones in the city of Normal. The observations are taken for different parcels of total neighborhoods in the city of Normal. This research will use hedonic model for conducting a regression analysis on the subject. The hypothesis taken into consideration before starting the research is to prove that more 50 percent variation in the housing price is affected by the zoning characteristics. This research will try to prove the hypothesis by comparing the assessed values with the predicted values from the model. Keywords: Regression Analysis, Hedonic Model, Zoning Patterns, Physical Value, Assessed Value, Multicollinearity

Introduction: Housing price depends upon multiple variables. These variables contain both zoning as well as physical variables and other factors. Zoning variable are defined as R1 A: Single family residence district. R1 B: Single family residence district with multifamily dwellings. R2 : Mixed residence district. S2 : Public land and institutional districts. Physical Variables are defined as log(lotsqfeet), log(lotdimb), log(lotdima), lot(totbldgft), lot(bathrooms), Age, Age^2, Condition, Tax Rate Zoning differentiates land as per its use. Different zoning areas have different conditions. Somebody planning to do alteration has to take permissions doing these alterations. Thus, zoning affects the value of prices. Zoning is done by Governments and in USA it is done by federal agency. Zoning restricts the use of land in random way. E.g. the land available for building single family houses was 150 lots per parcel, after enacting zoning the land available would be 110 lots per parcel. This results in rise of prices in a certain zones. The change in property value due to zoning is known as option value. Zoning thus helps to use a certain value of land for its designated use. This research will use hedonic model to analyze how zoning will affect the housing value. The research will develop two models for developed and underdeveloped areas. The logarithmic value of house will be calculated using multiple variables. The most important part of the research would be the usage of different zone and different neighborhood areas of the city of Normal. 705

The 2011 New Orleans International Academic Conference New Orleans, Louisiana USA 2011 The relationship between different types of zones and its effects on the price of the house has been studied often because of the increasing urban planning by many researches. In this research value has been considered as dependant variable. The zoning effect will result in change in option value/ price of the house. The research has been constricted to the zoning patterns of the city of Normal. The primary purpose of zoning is to segregate land as per the design usage. Different zones are created for urban planning. Local governments are responsible for zoning. In the city of Normal zoning is used in the criterion of R1 A, R1 B, R2 and S2 which are most probably zone as the city constitutes of residential area. This zoning is done by Normal township assessor. Also the price valuation of houses differs as per different location. The locations near the basic amenities are prone to higher prices as compared to the...
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