Mixed land uses, land-use externalities, and residential property values: A reevaluation

Empirical evidence concerning the impact of neighborhood land-use externalities on residential property value is mixed. That is, no concensus has emerged in the literature as to whether locating non-residential land-use activities in residential neighborhoods can be expected to increase, decrease or leave unaltered surrounding property values. The purpose of this research was two-fold: 1) to construct a theoretical model of consumer behavior in which both the positive and negative effects of neighborhood land-use externalities are taken into account, and 2) to test this generalized model empirically, using hedonic pricing equations. The principal implication of the theoretical model is that the effect of non-residential activity on residential property values is a priori indeterminate, the outcome depending on the relative strength of the associated positive and negative external effects generated. The empirical test of the model was conducted for the city of Tucson, Arizona, where it is shown that over low ranges, increasing the amount of industrial, commercial, multifamily and public land-use activity in a neighborhood tended to increase surrounding residential property values. It is concluded that in locating future economic activity an optimal mix of landuse activities should be sought, not the regional separation of activities.