JWARP  Vol.1 No.4 , October 2009
Modelling the Financial Value of the Maroochy River to Property Values: An Application of Neural Networks
ABSTRACT
The Maroochy River, which is located on east coast of Australia, provides a variety of uses and values to the community. Changes in structure, function and management of the river will influence the value that the community derives from it. Therefore, critical to the river’s continued management is the development of policy relevant tools based on the community’s value of the river. This paper focuses on estimating the fi-nancial value the local residents derive from living close to the river through investigation of changes in residential property values due to attributes of the Maroochy River. It is a complex analysis since there are several confounding geographical and property variables. Given a large and complete dataset of 28,000 properties for the Maroochy region, Artificial Neural Networks (ANN) was applied to estimate the economic value of the properties. This ANN was then able to simulate scenarios for property values with respect to changes in environmental features. It showed the Maroochy River contributed AU$900,000,000 to the unim-proved capital value of the whole region, a value that could not be estimated previously, and much higher than anticipated. Calculating potential annual payments to the Shire Council through land tax analysis from these property values, provides the council with means to justify expenditure to maintain a standard of water quality and ecosystem health.

Cite this paper
nullA. HIGGINS, L. PEARSON and L. LAREDO, "Modelling the Financial Value of the Maroochy River to Property Values: An Application of Neural Networks," Journal of Water Resource and Protection, Vol. 1 No. 4, 2009, pp. 237-248. doi: 10.4236/jwarp.2009.14029.
References
[1]   C. Lee and P. Linneman, “Dynamics of the greenbelt amenity effect on the land market-The case of Seoul’s greenbelt,” Real Estate Economics, Vol. 26, pp. 107–129, 1998.

[2]   L. J. Pearson, C. Tisdell and A. T. Lisle, “The impact of Noosa national park on surrounding property values: An application of the hedonic price method,” Economic Analysis and Policy, Vol. 32, No. 2, pp. 155–171, 2002.

[3]   N. Hanley, R. E. Wright and B. Alvarez-Farizo, “Esti-mating the economic value of improvements in river ecology using choice experiments: An application to the water framework directive,” Journal of Environmental Management, Vol. 78, pp. 183–193, 2006.

[4]   H. Chen, N. Chang and D. Shaw, “Valuation of in-stream water quality improvement via fuzzy contingent valuation method,” Stochastic Environmental Research Risk As-sessment, Vol. 19, pp. 158–171, 2005.

[5]   R. A. Kramer and J. I. Eisen-Hecht, “Estimating the eco-nomic value of water quality protection in the Catawba River basin,” Water Resources Research, Vol. 30, No. 9, pp. 1182, 2002.

[6]   R. C. Mitchell and R. T. Carson, “Using surveys to value public goods: The contingent valuation method,” Re-sources of the Future, Washington, D.C, 1989.

[7]   M. K. Alam and D. Marinova, “Measuring the total value of a river cleanup,” Water Science and Technology, Vol. 48, pp. 149–156, 2003.

[8]   R. S. Rosenberger and J. B. Loomis, “Benefit transfer of outdoor recreation use values. A technical Document Supporting the Forest Service Strategic Plan,” Gen. Tech. Rep. RMRS-GTR-72. Fort Collins, CO: U.S. Department of Agriculture, Forest Service, Rocky Mountain Research Station, pp. 59, 2001.

[9]   G. Van Houtven, J. Powers and S. K. Pattanayak, “Valu-ing water quality improvements in the United States us-ing meta-analysis: Is the glass half full or half empty for national policy analysis?” Resource and Energy Eco-nomics, Vol. 29, pp. 206–228, 2007.

[10]   S. Rosen, “Hedonic prices and implicit markets: Product differentiation in perfect competition,” Journal of Politi-cal Economy, Vol. 82, No. 1, pp. 34–55, 1974.

[11]   S. D. Shultz, “The use of census data for hedonic price estimates of open-space amenities and land use,” Journal of Real Estate Finance and Economics, Vol. 22, No. 2/3, pp. 239–252, 2001.

[12]   G. Acharya and B. L. Lewis, “Valuing open space and landuse patterns in urban watersheds,” Journal of Real Estate Finance and Economics, Vol. 22, pp. 221–237, 2001.

[13]   B. L. Mahan, S. Polasky and R. M. Adams, “Valuing urban wetlands: A property price approach,” Journal of Land Economics, Vol. 76, pp. 100–113, 2000.

[14]   E. D. Benson, J. L. Hansen, J. Arthur, L. Schwartz, G. T. Smersh, “Pricing residential amenities: The value of a view,” Journal of Real Estate Finance and Economics, Vol. 16, pp. 55–73, 1998.

[15]   B. Colby and S. Wishart, “Riparian areas generate prop-erty value premium for landowners,” Working paper, University of Arizona College of Agriculture and Life Sciences, Department of Agricultural and Resource Eco-nomics, 2002.

[16]   K. Boyle and L. Taylor, “Does the measurement of prop-erty and structural characteristics affect estimated implicit prices for environmental amenities in a hedonic model?” Journal of Real Estate Finance and Economics, Vol. 22, No. 2/3, pp. 303–318, 2001.

[17]   L. Tyrvainen, “The amenity value of the urban forest: an application of the hedonic pricing method,” Landscape and Urban Planning, Vol. 37, pp. 211–222, 1997.

[18]   W. A. Donnelly, “Hedonic price analysis of the effect of a floodplain on property values,” Journal of the American Water Resources Association, Vol. 25, No. 3, pp. 581–586, 2007.

[19]   S. Sengupta and D. E. Osgood, “The value of remoteness: A hedonic estimation of ranchette prices,” Ecological Economics, Vol. 44, pp. 91–103, 2003.

[20]   B. Fraser and G. Spencer, “The value of an ocean view: An example of hedonic property amenity valuation,” Australian Geographical Studies, Vol. 36, No. 1, pp. 94–98, 1998.

[21]   J. Luttik, “The value of trees, water and open space as reflected by house prices in the Netherlands,” Landscape and Urban Planning, Vol. 48, pp. 161–167, 2000.

[22]   C. Bastian, D. McLeod, M. Germino, W. Reiners and B. Blasko, “Environmental amenities and agricultural land values: A hedonic model using geographical information systems data,” Ecological Economics, Vol. 40, pp. 337–349, 2002.

[23]   I. R. Lake, A. Lovett, I. J. Bateman, I. H. Langford, “Modelling environmental influences on property prices in an urban environment,” Computers, Environment and Urban Systems, Vol. 22, pp. 121–136, 1998.

[24]   A. Freeman and I. I. I. Myrick, “The measurement of environmental and resource values,” Theory and Methods, Resources for the Future, 1997.

[25]   D. W. Pearce and A. Markandya, “Environmental policy benefits: Monetary valuation,” Organisation for Eco-nomic Co-operation and Development, Paris, 1989.

[26]   J. A. Anderson, “An Introduction to Neural Networks”. M. I. T. Press, 1995.

[27]   T. Khanna, “Foundations of Neural Networks,” Addi-son-Wesley, 1990.

[28]   H. Selim, “Determinants of house prices in Turkey: He-donic regression versus artificial neural network,” Expert Systems with Applications, In press, 2008.

[29]   R. O. Strobl and F. Forte, “Artificial neural network ex-ploration of the influential factors in drainage network derivation,” Hydrological Processes, Vol. 21, pp. 2965– 2978, 2007.

[30]   Y. Miao, D. J. Mulla, and P. C. Robert, “Identifying im-portant factors influencing corn yield and grain quality variability using artificial neural networks,” Precision Agriculture, Vol. 7, pp. 117–135, 2006.

[31]   J. C. Ingram, T. P. Dawson, R. J. Whittaker, “Mapping tropical forest structure in southeastern Madagascar using remote sensing and artificial neural networks,” Remote Sensing of Environment, Vol. 94, pp. 491–507, 2004.

[32]   N. Garcia, M. Gamez and E. Alfaro, “ANN+GIS: An automated system for property valuation,” Neurocom-puting, Vol. 71, pp. 733–742, 2008.

[33]   P. S. Jarvis, I. D. Wilson and S. E. Kemp, “The application of a new attribute selection technique to the forecasting of housing value using dependence modelling,” Neural Com-puting and Applications, Vol. 15, pp. 136–153, 2006.

[34]   L. J. Pearson, A. J. Higgins, L. Laredo and S. Whitten, “Maroochy River Value Project,” Final Report submitted to the Sunshine Coast Regional Council, 2008.

 
 
Top