THE PROPERTY VALUE PREMIUM OF A PLACE OF WORSHIP

Abstract

I. INTRODUCTION As state and local budgets begin to feel the impacts of the recent sharp decline in property values, the debate surrounding property taxes and tax-exempt properties is finding its way into the news and political debate. In municipalities, there are often a variety of properties and landscapes that are off the tax rolls including amenities such as parks, lakes, or green spaces, but also including tax-exempt entities such as universities, religious structures, or other nonprofit organizations. These amenities and entities may hold tax-exempt status because each arguably contributes to an important public purpose. However, the fiscal impact of these tax-exempt amenities and entities also may be minimal because each also makes an indirect contribution to the local property tax base, by raising the value of surrounding taxable properties. The fiscal implications naturally vary depending on the magnitude of the indirect impact. There is a large literature that has evolved to examine this empirical question. Much of this research has examined the fiscal implications of amenities such as parks, lakes, and green spaces. Previous research has shown that amenity effects are important in both the sale price and tax assessment values for residential properties and hedonic pricing models have been able to document these effects (Brown and Pollakowski 1977; Correll Lillydahl, and Singell 1978; Darling 1973; Espey and Owusu-Edusei 2001; Irwin 2002: Kaufman and Cloutier 2006; Lansford and Jones 1995; Weigher and Zerbst 1973). However, fewer studies have examined the impact of tax-exempt properties such as religious structures. In this article, we examine what effect, if any, religious structures have on the value of neighborhood properties. We build on a small literature (Carroll, Clauretie, and Jensen 1996; Do, Wilbur, and Short 1994) which has found ambiguous results; alternatively finding that religious structures are a nuisance that lower the value of surrounding properties or amenities that increase nearby property values; and even finding that the property value impact varied by denomination. We also make empirical contributions to the larger hedonic literature that examines the influence of neighborhood characteristics on property values. In particular, we identify a natural experiment where a religious structure was dropped into an older existing neighborhood for historical reasons, rather than included as a feature of a newly constructed neighborhood. In the latter case, land for religious structures could be carefully placed in either the higher or lower value areas of a new neighborhood. Furthermore, in contrast to most studies in the hedonic literature, we also gather a long data series of sale values for single-family homes from the period before and after the religious structure was built. Most hedonic studies only include a cross section or panel of assessed or sale values for the period after an amenity or neighborhood characteristic is in place. This data set allows us to estimate a pre-and post-treatment model to isolate the impact of the completed religious structure on neighborhood properly values. We show that standard estimation techniques may mischaracterize the contribution of religious structures or other amenities to home values. We conclude that more robust estimation techniques are required for research using hedonic pricing and event studies models to obtain more precise results. This article is organized as follows. In Section II we provide a review of the literature on hedonic pricing models with an emphasis on the influence of neighborhood amenities on property values. In Section III, We describe our data on sale values and housing characteristics. In Section IV, we describe the empirical estimates and in Section V, we present our conclusions. II. LITERATURE REVIEW The literature on hedonic pricing models for residential housing is large and well established. …