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ECONOMIC ACTIVITY FOLLOWING CRITICAL HABITAT DESIGNATION
FOR THE CACTUS FERRUGINOUS PYGMY-OWL
(CRITICAL HABITAT UNITS 3 AND 4):
A REVIEW OF KEY ECONOMIC INDICATORS
Prepared for:
The Coalition for Sonoran Desert Protection
Prepared by:
Bruce McKenney
October 2000
EXECUTIVE SUMMARY
Homebuilder associations predicted that the designation of critical habitat for the cactus
ferruginous pygmy-owl on July 12, 1999 would cause immediate and severe economic impacts,
particularly in critical habitat units 3 and 4 located in Pima County and the Town of Marana. A
frequently cited study prepared by Elliott D. Pollack & Company for the Southern Arizona
Homebuilders Association (SAHBA) estimated that designation would result in an immediate 80
percent drop in property values, million dollar losses in tax revenues, thousands of lost jobs, and
billion dollar losses to the regional economy due to reduced construction activity.
More than one year has passed since critical habitat designation. It is now possible to evaluate
economic impacts from designation based on available economic data. This study assesses how
economic activity in critical habitat units 3 and 4 has changed since designation by analyzing key
indicators – housing starts, vacant land values, and construction activity and employment. All
economic data are adjusted for inflation to 1999 dollars based on the consumer price index.
Findings of this study provide no support for any of the SAHBA report’s predictions of
enormous negative economic impacts from designation. On the contrary, analysis of available
data suggests that post-designation economic activity in critical habitat units 3 and 4 has
continued at a pace similar to, and in many cases at a higher level than, pre-designation activity.
Key questions and findings of this study are summarized below.
Housing Starts
• Has the number of high-density housing starts declined since critical habitat
designation? The SAHBA study suggests that designation will bring high-
density development (i.e., 3 to 4 residential units per acre) to a standstill.
Findings: High-density housing starts have increased by 34.2 percent in units 3
and 4 since designation. (See page 5).
• Has high-density development decreased relative to low-density development
since critical habitat designation? The SAHBA study predicts that low-density
housing (i.e., 1 residential unit per 3 to 4 acres) will dominate future development.
Findings: High-density housing starts continued to represent the vast majority of
all housing starts in units 3 and 4 since designation – 93 percent in the year after
designation compared to 91 percent in the year before designation. (See page 5).
• Has the number of acres developed for high-density housing decreased since
critical habitat designation? The SAHBA study estimates that designation will
result in 800 fewer acres being developed for high-density housing in the first
year following designation.
Findings: The number of acres developed for high-density housing has increased
by 43.6 percent in units 3 and 4 since designation. (See page 5-6).
i
Value of Vacant Land Zoned for Residential Development1
• Has a significant decline in vacant (undeveloped) land values occurred since
critical habitat designation? The SAHBA study predicts vacant land values will
plummet by 80 percent – from an average of $60,000 per acre to $12,500 per acre.
Findings: Vacant land values have increased in units 3 and 4 since designation.
The average vacant land sales price per acre increased by 18.7 percent compared
to the year preceding designation. It was up 8.3 percent compared to a three-year
average of the price per acre preceding designation. (See page 7-9).
• Has the number of vacant land sales or total sales revenue decreased since
critical habitat designation? The SAHBA study suggests that designation will
“play havoc” with the “saleability” of vacant land in critical habitat.
Findings: Vacant land sales after designation have continued at a pace similar to
before designation, while revenue from these sales has increased. The number of
vacant land sales in the year after designation (45 sales) was in line with sales in
the three years preceding designation (45, 41, and 48 sales respectively). Total
revenue from vacant land sales increased from $4.3 million in the year before
designation to $6.1 million in the year after designation. (See page 7-9).
Construction Activity and Employment
• Has residential construction activity in the Tucson Metropolitan Area
decreased since critical habitat designation? The SAHBA study predicts $8.5
billion in total losses over 15 years due to reduced construction activity.
Findings: Residential construction contract awards in the Tucson Metropolitan
Area have increased by 26.5 percent since designation. (See page 10).
• Has the number of construction jobs in the Tucson Metropolitan Area
decreased since critical habitat designation? The SAHBA study estimates a
loss of 2,710 construction jobs per year for 15 years.
Findings: Construction job growth in the Tucson Metropolitan Area has
continued at a steady pace – about 5 to 6 percent annual job growth before and
after designation. (See page 10-11).
1
Vacant land zoned for commercial/industrial development is not examined in this study. This analysis focuses on
sales of vacant land zoned for residential development in critical habitat units 3 and 4. Over the past four years, 97
percent of these sales have been zoned for low-density residential development; only six sales were zoned for high-
density development. In light of the high number of sales of vacant land zoned for low-density development, and the
high number of high-density housing starts, the pattern of development in units 3 and 4 appears to be to purchase
vacant land zoned for low-density development and later get the land “upzoned” for high-density development.
Therefore, if critical habitat designation is affecting high-density development as predicted by the SAHBA study, an
analysis of vacant land zoned for low-density development should reveal these impacts.
ii
TABLE OF CONTENTS
EXECUTIVE SUMMARY………………………………………………………………………i
ACKNOWLEDGEMENTS……………………………………………………………………. iv
INTRODUCTION……………………………………………………………………………… 1
Purpose of Study………………………………………………………………………………... 1
Summary of SAHBA Study’s Estimates…………………………………………………….…. 2
Key Questions Examined by This Study…………………………………………………….…. 3
Summary of Data Sources and Methods……………………………………………………..….4
HOUSING STARTS…………………………………………………………………………….4
Number of High-Density Housing Starts…………………………………………………….….5
Number of Acres Developed for High-Density Housing Starts………………………………... 5
VACANT LAND VALUES……………………………………………………………………. 6
Sales of Vacant Land Zoned for High-Density Residential Development……………………... 7
Sales of Vacant Land Zoned for Low-Density Residential Development.……………………... 8
CONSTRUCTION ACTIVITY AND EMPLOYMENT………………………………………10
Construction Contract Awards……………………………………………………………...….10
Construction Employment………………………………………………………………….…. 10
SUMMARY OF FINDINGS……………………………………………………………….…. 11
Housing Starts: Key Findings……………………………………………………………..…... 11
Value of Vacant Land Zoned for Residential Development: Key Findings………………….. 11
Construction Activity and Employment: Key Findings…………………………………….….12
APPENDIX 1: DATA SOURCES AND METHODS…………………………………………13
APPENDIX 2: PREVIOUS CRITIQUE OF THE SAHBA STUDY………………………….17
iii
ACKNOWLEDGEMENTS
I am grateful to the Coalition for Sonoran Desert Protection for their support of this study. I
especially want to thank Jenny Neeley for her diligent collection of data, perceptive comments,
and flexible, good-humored, and indefatigable research assistance throughout the development of
this study. The study would not have been possible without her efforts.
I also extend my appreciation to staff of the Pima County Development Services, Pima County
Planning Department, Pima County Assessor’s Office, Tucson Planning Department, Town of
Marana Planning Department, and Economic and Business Research Programs at the University
of Arizona’s Eller College of Business and Public Administration for providing valuable
information and data for this study. In addition, I am grateful to the many people who
volunteered their time to review drafts of this study and provide useful and insightful comments.
Responsibility for any remaining errors rests with me alone.
ABOUT THE AUTHOR
Bruce McKenney is an independent consultant with eight years of experience in the field of
economic and environmental policy analysis. Recent experience includes four years working at
Industrial Economics, Incorporated (IEc), an economic and environmental consulting firm
located in Cambridge, Massachusetts. At IEc, clients for Mr. McKenney’s work included the
U.S. Environmental Protection Agency and U.S. Fish and Wildlife Service – for whom he
conducted an economic analysis of critical habitat designation for the cactus ferruginous pygmy-
owl in 1999. Mr. McKenney holds a B.A. with Honors in Political Science from Brown
University and a Master in Public Policy degree from the Kennedy School of Government at
Harvard University.
iv
1. INTRODUCTION
On December 30, 1998, the U.S.
Department of the Interior’s Fish and
Wildlife Service (FWS) proposed the
designation of 730,000 acres as critical
habitat for the cactus ferruginous pygmy-
owl (referred to as the “pygmy-owl”
throughout this study). Homebuilder
associations quickly responded with
warnings that critical habitat designation
would cause severe economic impacts,
particularly in proposed critical habitat
units 3 and 4 located in Pima County and
the Town of Marana (see map). To support their claims, developers cited an assessment of
economic impacts prepared by Elliott D. Pollack & Company for the Southern Arizona
Homebuilders Association (SAHBA).2 The SAHBA study predicts immediate and significant
impacts, including an 80 percent drop in property values, million dollar losses in tax revenues,
thousands of lost jobs, and billion dollar losses to the regional economy due to reduced
construction activity.
Despite the dire predictions of the SAHBA study, the FWS designated critical habitat for the
pygmy-owl on July 12, 1999. Under critical habitat designation, any land use/development
activities involving a “federal nexus” (i.e., federal permits, federal funding, or other federal
actions) within critical habitat boundaries are subject to a consultation with the FWS to ensure
that the land use activities will not harm the endangered species. It is important to note that,
even if critical habitat had not been designated, such consultations were already required under
the Endangered Species Act listing of the pygmy-owl in March 1997. However, the designation
of critical habitat makes the process of determining where such consultations are necessary
clearer by defining critical habitat boundaries on a map. In this sense, critical habitat designation
primarily plays an informational role, helping to focus conservation activities for the pygmy-owl
by identifying critical habitat areas and contributing to the awareness of federal land-managing
agencies and the public about the importance of these areas.
Purpose Of Study
Constructive public debate about critical habitat designation depends on accurate information.
Since designation, SAHBA and other homebuilder associations have filed lawsuits in an effort to
block critical habitat designation and heated public debate about critical habitat has continued,
with opponents frequently citing the SAHBA study’s estimates of economic impacts. More than
one year has passed since critical habitat designation for the pygmy-owl, and it is now possible
2
Elliott D. Pollack & Co., “The Economic and Fiscal Impact of the Designation of 60,060 Acres of Privately Owned
Land in Pima County, Arizona as Critical Habitat for the Cactus Ferruginous Pygmy Owl,” prepared for Southern
Arizona Homebuilders Association, February 25, 1999.
1
to evaluate economic impacts from designation based on actual economic data, rather than rely
on pre-designation predictions.
The purpose of this study is to assess how economic activity in critical habitat units 3 and 4 has
changed since designation by analyzing key indicators – housing starts, vacant land values, and
construction activity and employment.3 These findings can then be evaluated against the
SAHBA report’s predicted impacts to determine if SAHBA’s estimates should be accepted,
revised, or thrown out. It is hoped that findings from this study can serve as a useful input to
public debate about critical habitat designation.
Summary of SAHBA Study’s Estimates
The SAHBA study evaluates potential impacts for about 60,000 acres of privately owned land
located in critical habitat units 1, 2, 3, 4, and 6, with a focus on 15,000 acres of undeveloped
private land in “proximity to development” in units 3 and 4. Almost all of the impacts predicted
by the SAHBA study flow from a key assumption that these 15,000 acres of undeveloped private
land, which ultimately would have been developed at high densities (3 to 4 residential units per
acre), will instead be developed at low densities (1 residential unit per 3 to 4 acres) due to critical
habitat designation. Based on this assumption, the SAHBA study concludes that designation will
result in the following losses over 15 years:
• Property values of vacant land will decline because fewer houses can be built
per acre. Property values for 15,000 acres of undeveloped private land in units 3
and 4 will fall from an average of $60,000 per acre to $12,500 per acre – a drop in
value of about 80 percent. Totals losses will be $276.5 million.
• Tax revenues will be lost because lower density development will result in
lower population and a smaller tax base. The SAHBA study predicts $193
million in lost tax revenue to the Town of Marana and $254 million in lost tax
revenue to Pima County.
• Construction activity will decrease and jobs will be lost because fewer houses
are constructed. The SAHBA study predicts $8.5 billion in total economic
losses to the region due to lost construction and associated economic activity.
These losses will result in 105,966 person-years of lost employment – 2,710
construction jobs lost per year and 4,354 “indirect” jobs lost per year.4
3
A “housing start” is commonly defined as an issued housing permit.
4
Indirect employment impacts are experienced in industries that provide goods and services to the construction
industry.
2
Key Questions Examined By This Study
To assess the validity of the SAHBA report’s predictions, this study evaluates available data on
housing starts and vacant land values in units 3 and 4, and construction activity and jobs in the
Tucson Metropolitan Area, before and after critical habitat designation. Key questions addressed
by the study are highlighted below.
Housing Starts
• Has the number of high-density housing starts declined since critical habitat
designation? The SAHBA study suggests that critical habitat designation will
bring high-density development to a standstill.
• Has high-density development decreased relative to low-density development
since critical habitat designation? The SAHBA study predicts that future
development will be dominated by low-density development.
• Has the number of acres developed for high-density housing decreased since
critical habitat designation? The SAHBA study estimates that designation will
result in 800 fewer acres being developed for high-density housing in the first
year following designation.
Vacant Land Values
• Has a significant decline in vacant (undeveloped) land values occurred since
critical habitat designation? As noted above, the SAHBA study predicts vacant
land values will plummet by about 80 percent.
• Has the total number of vacant land sales or total sales revenue decreased
since critical habitat designation? The SAHBA study suggests that critical
habitat designation will significantly affect the “saleability” of vacant private land
in critical habitat.
Construction Activity and Employment
• Has residential construction activity in the Tucson Metropolitan Area
decreased since critical habitat designation? The SAHBA study predicts $8.5
billion in total losses over 15 years due to reduced construction activity.
• Has the number of construction jobs in the Tucson Metropolitan Area
decreased since critical habitat designation? The SAHBA study estimates a
loss of 2,710 construction jobs per year for 15 years.
3
Summary of Data Sources and Methods5
Data analyzed in this study were drawn from the following sources: Pima County Development
Services, Pima County Assessor’s Office, Town of Marana Planning Department, Tucson
Planning Department, and Arizona Economy, a quarterly publication of the Economic and
Business Research Programs at the University of Arizona’s Eller College of Business and Public
Administration. Where available, data were collected for the period from January 1996 to June
2000. All economic data are adjusted for inflation to 1999 dollars based on the consumer price
index.
As mentioned above, the SAHBA study defines high-density development as 3 to 4 residential
units per acre and low-density development as 1 residential unit per 3 to 4 acres. Another
common zoning density – about 1 residential unit per acre – is ignored by the SAHBA report; it
is not defined as either high- or low-density development. As data collected for this study
reveals, this zoning density exists in critical habitat units 3 and 4 and therefore should not be
ignored.
There are no set definitions governing how to group the myriad of zoning classifications into
categories of “high-density” and “low-density” development. This study maintains the same
definitions of high- and low-density as the SAHBA report, but on the advice of the Pima County
Planning Department, adds the zoning density of 1 unit per acre to the low-density category.
This includes zoning classifications such as CR-1, GR-1, SH, and R-36 as noted in Appendix 1.
2. HOUSING STARTS
As described above, the SAHBA study’s impact estimates are largely based on a single key
assumption that 15,000 acres of undeveloped private land in critical habitat units 3 and 4, which
ultimately would have been developed at high densities, will instead be developed at low
densities due to critical habitat designation. This section analyzes available data on housing
starts in units 3 and 4 from July 1996 to February 2000 to assess whether this claim can be
supported.6 The analysis focuses on how the two following indicators have changed since
critical habitat designation: (1) number of high-density housing starts; and (2) number of acres
developed for high-density housing starts.
5
A detailed description of data sources and methods is provided in Appendix 1.
6
Housing start data analyzed in this study includes all housing starts in Pima County and Town of Marana that are
also in critical habitat units 3 and 4. Although a small area of Oro Valley is also in units 3 and 4, this study was
unable to obtain data on housing starts in Oro Valley that are also in units 3 and 4. Given the small area of Oro
Valley in units 3 and 4, this omission is unlikely to affect overall results. As noted previously, a “housing start” is
commonly defined as an issued housing permit. Once a house is ready to be inhabited and all inspections have been
completed, an issued housing permit is finalized. According to Planning Department officials, it is very rare to issue
a housing permit and then not finalize it – this occurs about 1.5 percent of the time. Therefore, Planning
Departments typically count issued housing permits as housing starts.
4
Number of High-Density Housing Starts
The SAHBA study predicts that critical habitat designation will cause high-density development
to immediately cease (or decrease dramatically) in units 3 and 4. If development occurs after
designation, it will primarily consist of low-density housing starts. As shown in Exhibit 2-1, data
on housing starts since designation do not support this predicted scenario. Rather than cease,
high-density development in units 3 and 4 has continued at a rapid pace. High-density housing
starts in the first year after critical habitat designation (870 starts) were 34.2 percent higher than
the previous year (648 starts). Also of note, high-density housing starts have continued to
represent the vast majority of all housing starts in units 3 and 4 since designation (93 percent).
There is no evidence of a shift from high-density to low-density development after designation.
Exhibit 2-1
High-Density and Low-Density Housing Starts in Critical Habitat Units 3 and 4
Before and After Critical Habitat Designation
Total High- Total Low- Proportion of High-
Density Density Total Housing Density Starts to
Year Housing Starts Housing Starts Starts Total Starts
Before July 97 – 415 47 462 89.8 %
CHD June 98
July 98 – 648 66 714 90.8 %
June 99
After July 99 – 870 66 936 93.0 %
CHD June 00*
*Because data are not yet available on housing starts for March-June 2000, estimates for these months
are based on the increase in starts from July 99-Feb 00 compared to the same eight-month period of the
previous year (July 98-Feb 99). Comparing the same eight-month periods controls for any seasonal
variation. See Appendix 1: Data Sources and Methods for more information.
Sources: Pima County Development Services and Town of Marana Planning Department
Number of Acres Developed for High-Density Housing Starts
The SAHBA study estimates that critical habitat designation will result in 800 fewer acres being
developed for high-density residential housing in the first year following designation. Because
the land cannot be developed at high densities, its value will fall from $60,000 per acre to
$12,500 per acre. By multiplying this loss ($47,500 per acre) by the number of acres not
developed due to critical habitat (800 acres), the SAHBA study estimates $38 million in lost
property value in the first year after designation (p. 6).
As shown in Exhibit 2-2, data on acres developed for high-density housing starts in units 3 and 4
do not support the SAHBA study’s estimates. Rather than decrease, high-density land
development continued at a considerable pace after designation. Acres developed for high-
density housing starts in the first year after designation (206.2 acres) were 43.6 percent higher
than the previous year (143.7 acres). It is also important to note that as a proportion of all land
development, high-density land development has increased slightly to 54.8 percent in the year
after designation compared to 53.0 percent in the year preceding designation.
5
Exhibit 2-2
High-Density and Low-Density Acres Developed in Critical Habitat Units 3 and 4
Before and After Critical Habitat Designation
Proportion of High-
Total High- Total Low- Density Acres
Density Acres Density Acres Total Acres Developed to Total
Year Developed Developed Developed Acres Developed
Before July 97 – 85.0 105.4 190.4 44.7 %
CHD June 98
July 98 – 143.7 127.2 270.9 53.0 %
June 99
After July 99 – 206.2 170.3 376.5 54.8 %
CHD June 00*
*Because data are not yet available on acres developed for March-June 2000, estimates for these months
are based on the increase in acres developed from July 99-Feb 00 compared to the same eight-month
period of the previous year (July 98-Feb 99). Comparing the same eight-month periods controls for any
seasonal variation. See Appendix 1: Data Sources and Methods for more information.
Sources: Pima County Development Services and Town of Marana Planning Department
Data on acres developed in units 3 and 4 also call into question what basis the SAHBA study
used for developing its estimate that, without critical habitat designation, 800 acres would be
developed for high-density residential housing. Data on acres developed indicate that only 143.7
acres were developed for high-density residential housing in the year prior to designation, and
only 270.9 acres in total. If 800 acres had been developed for high-density housing starts in the
year following designation, it would have represented a remarkable 457 percent increase over the
preceding year’s activity. The SAHBA study does not provide any specific information about its
basis for projecting such extraordinarily fast growth in high-density residential housing
development in units 3 and 4. However, forecasting this exceptionally rapid growth, but
predicting it will not occur due to designation, allows the SAHBA study to estimate large-scale
economic losses.
3. VACANT LAND VALUES
This section focuses on vacant land values, rather than developed land and existing housing
values, because critical habitat designation can only affect land use/development activities that
involve a “federal nexus” (i.e., federal permits, federal funding, or other federal actions). Where
land has already been developed, any necessary federal permits and funding will already have
been obtained prior to carrying out the development. Therefore, developed property is unlikely
to be affected by critical habitat designation. In contrast, if vacant land is to be developed in the
future, such development may involve a federal nexus and thereby be subject to a consultation
with the FWS to ensure that the land use activities will not harm the pygmy-owl.
The SAHBA study suggests that critical habitat designation will have a devastating impact on the
undeveloped property (vacant land) market, especially in critical habitat units 3 and 4. The study
claims designation will restrict high-density residential development, causing two main impacts:
• An immediate and significant decline in vacant land values. “The impact [from
critical habitat designation] on land values for the approximately 15,000 acres of
6
undeveloped private land in proximity of development [critical habitat units 3 and
4] is significant. The present value of the diminution in land values for that
property is $276.5 million” (p. 2). “The loss of land value is immediate” (p. 20).
• A steep reduction in the total number and sales revenue of vacant land
transactions. “Merely the potential for critical habitat designation has already
played havoc with both plans for development and the saleability of land owned by
the private sector” (p. 5).
To evaluate the validity of these claims, this section examines data provided by the Pima County
Assessor’s Office on vacant land sales zoned for residential development within critical habitat
units 3 and 4 from July 1996 to May 2000.7 The total number of vacant land sales, total sales
revenue, total acreage sold, and average sales price per acre are analyzed before and after critical
habitat designation.8 This section begins with an examination of vacant land zoned for high-
density residential development, followed by a similar assessment of vacant land zoned for low-
density residential development.
Sales of Vacant Land Zoned for High-Density Residential Development
From July 1996 to May 2000, a total of 181 sales of vacant land zoned for residential
development were transacted in critical habitat units 3 and 4, of which only six were sales of
vacant land zoned for high-density development (see Exhibit 3-1). This low number of sales
does not allow for firm conclusions to be drawn about the impacts of critical habitat on sales of
vacant land zoned for high-density development, although it is notable that one sale has occurred
since designation at a sales price per acre higher than previous years.
Exhibit 3-1
Sales of Vacant Land Zoned for High-Density Residential Development
Before and After Critical Habitat Designation (Inflation Adjusted – 1999$)
Total Number Total Sales Total Average Sales
Year of Sales Revenue Acreage Sold Price Per Acre
Before July 96 – June 97 3 $1,894,232 52.5 $36,087
CHD July 97 – June 98 2 $736,618 20.3 $36,287
July 98 – June 99 0 - - -
After July 99 – May 00 1 $338,000 6.21 $54,428
CHD
Source: Pima County Assessor’s Office
7
Vacant land sales data analyzed in this study includes all sales of vacant land zoned for residential development in
critical habitat units 3 and 4 (i.e., vacant land sales in Pima County, Town of Marana, and Oro Valley that are also in
units 3 and 4). The Pima County Assessor’s Office classifies vacant land according to a commonly used definition
published by The Appraisal Institute – the governing body for real estate appraisers – in its 10th edition of Appraisal
of Real Estate. The definition states: “Raw land can be undeveloped or in agricultural use. It may be located in
rural, suburban or urban areas and may have the potential to be developed for residential, commercial, industrial,
agricultural or special purpose use.”
8
Vacant land sales prices are commonly considered the best indicator of vacant land values. According to the Pima
County Assessor’s Office, assessed vacant land values are often much lower than realistic fair-market values.
7
One reason for the low number of vacant land sales zoned for high-density development is that
most of the vacant land in critical habitat units 3 and 4 is zoned for low-density development.
For example, about 90 percent of the undeveloped private land in units 3 and 4 located in Pima
County (about 6,603 acres out of 7,418 acres) was zoned for low-density development at the
time of critical habitat designation.9 Therefore, it is not surprising to find few vacant land sales
of land zoned for high-density development.
A second reason for the low number of sales of vacant land zoned for high-density development
appears to be the manner in which development takes place in critical habitat units 3 and 4 (and
perhaps the region). As discussed in the previous section, high-density housing starts have
represented about 90 percent of housing starts in units 3 and 4 over the past three years, yet as
noted above only six sales of vacant land zoned for high-density development have occurred
over the past four years. This suggests a process of land development whereby developers
purchase vacant land zoned for low-density development in speculation of “upzoning” the
property for high-density development (i.e., filing for rezoning to a higher density classification).
This approach may explain why 175 of the 181 vacant land sales in units 3 and 4 over the past
four years have been of land zoned for low-density development, but high-density housing starts
in units 3 and 4 have continued unabated. In light of this pattern of development, it is important
to focus on how sales of vacant land zoned for low-density development have changed since
designation.
Sales of Vacant Land Zoned for Low-Density Residential Development
If critical habitat designation is restricting high-density residential development (as predicted by
the SAHBA study), then developers will no longer speculate about upzoning vacant land zoned
for low-density residential development. In turn, the average sales price of vacant land zoned for
low-density development should drop sharply following designation, reflecting the lost
opportunity for upzoning.
Under this scenario critical habitat designation should also cause a steep reduction in the number
of vacant land sales and total sales revenue. If landowners are facing market uncertainty due to
designation, and the value of their land has declined, they may refrain from selling their land,
choosing instead to wait and see if prices rise again (due to the outcome of critical habitat
lawsuits and/or the resolution of market uncertainty). As mentioned above, the SAHBA study
suggests that this scenario began with the proposal of critical habitat, which “played havoc” with
the “saleability” of land.
As shown in Exhibit 3-2, this study found no evidence to support the SAHBA report’s estimates.
First, data do not support the SAHBA report’s claim that designation will result in an 80 percent
drop in the average value of vacant land in units 3 and 4. Rather than plummet, average vacant
land sales prices per acre increased after designation by 18.7 percent compared to the previous
9
McKenney, Bruce, Unsworth, Robert, and Rebecca West, Industrial Economics, Incorporated, “Economic
Analysis of Critical Habitat Designation for the Cactus Ferruginous Pygmy-Owl,” prepared for Division of
Economics, U.S. Fish and Wildlife Service, June 1999, p. 42.
8
year. Compared to the average sales price per acre of the previous three years, prices were up
8.3 percent after designation.
Second, rather than coming to a standstill following critical habitat proposal or designation,
vacant land transactions in units 3 and 4 have continued at a pace similar to preceding years. In
the three years preceding designation there were an average of 45 sales – the same number of
sales transacted in the year after designation (see Exhibit 3-2). Finally, sales revenue data
indicate that vacant land sales revenue has risen considerably since designation, up from a total
of $4.3 million in the year preceding designation to $6.1 million in the year after designation.
Exhibit 3-2
Sales of Vacant Land Zoned for Low-Density Residential Development
Before and After Critical Habitat Designation (Inflation Adjusted – 1999$)
Total Total Total Average Percentage Increase
Number Sales Acreage Sales Price in Sales Price Per
Year of Sales* Revenue Sold Per Acre Acre After CHD
Before July 96 – June 97 45 $2,888,599 148.3 $19,482
CHD July 97 – June 98 41 $3,564,814 185.2 $19,247
July 98 – June 99 48 $4,344,888 263.1 $16,517
3-Year Average 45 $3,599,433 198.9 $18,102
(July 96 – June 99)
After July 99 – June 00** 45 $6,147,680 313.6 $19,601 +18.7 % compared to
CHD July 98 to June 99
+8.3% compared to
3-year average
* The total number of sales is presented including 19 sales for which data on acreage or sales price are
unavailable or not valid due to the circumstances of the sale. For more information, see Appendix 1: Data
Sources and Methods.
** Data were unavailable for the month of June 2000 at the time of writing. To allow for a comparison of
one-year periods, the number of sales, sales revenue, and acreage sold for June 2000 were projected based
on the preceding 11 months. For more information, see Appendix 1: Data Sources and Methods.
Source: Pima County Assessor’s Office
In addition to the finding that average vacant land sales prices have increased since designation,
it is important to note that vacant land sales data do not support the SAHBA study’s baseline
assumption that $60,000 per acre is the average value of the 15,000 acres of vacant land in
critical habitat units 3 and 4. The SAHBA study based its estimate of average vacant land value
on “discussions with builders, developers, and land brokers with knowledge of the area,”
assuming present prices for high-density development (p. 6).
The SAHBA study’s approach is significantly flawed, since most of the land in critical habitat
units 3 and 4 was zoned for low-density development at the time of designation, not high-density
development. In assessing economic impacts, land value estimates should be based on current
zoning, not on speculation about values under possible future upzoning. Moreover, even if there
is market speculation about the upzoning of land currently zoned for low-density development,
present prices for low-density land will already reflect that speculation through higher land sales
prices. This basic tenet of market economics is not followed by the SAHBA study, resulting in
misleadingly inflated land values. In combination with the unrealistically high projections of
acres to be developed (discussed in the previous section), this allows for predictions of enormous
land value losses.
9
4. CONSTRUCTION ACTIVITY AND EMPLOYMENT
The SAHBA study predicts that construction activity will be significantly affected and thousands
of jobs will be lost due to dramatically reduced high-density development in units 3 and 4. Over
15 years, the SAHBA study estimates multi-billion dollar losses to Pima County and the Town of
Marana due to lost construction and associated economic activity. The SAHBA study also
estimates that this will result in an annual loss of 2,710 construction jobs and 4,354 indirectly
related jobs in the region.
Since housing start data provide no evidence of a reduction in high-density development – the
basis of the SAHBA study’s loss estimates – it is unlikely that critical habitat designation has had
any negative effect on construction activity and jobs. Nonetheless, available data on
construction contract awards and employment in the region is briefly examined below to assess
whether there is any evidence of the significant impacts from designation predicted by the
SAHBA study.
Construction Contract Awards
Available data on residential construction contract awards in the Tucson Metropolitan Area do
not support the SAHBA study’s contention that designation will cause severe economic impacts
to the construction industry.10 As shown in Exhibit 4-1, residential construction contract awards
in the Tucson Metropolitan Area have increased 26.5 percent since critical habitat designation.
Exhibit 4-1
Value of Construction Contract Awards in Tucson Metropolitan Area, 1996-2000
(Inflation Adjusted – 1999$)
July 96-June 97 July 97-June 98 July 98-June 99 July 99-April 00
Value of Construction Contract $46.6 million $51.2 million $53.0 million $67.1 million
Awards (Average $/Month)
Growth in Construction 9.9 % 3.5 % 26.5 %
Contract Awards (Compared to
Previous Year)
Source: Arizona Economy, Economic and Business Research Programs, Eller College of Business and Public
Administration, University of Arizona, July 2000.
Construction Employment
Available data on construction employment in the Tucson Metropolitan Area indicate that
construction job growth has been steady over the past four years – about 5 to 6 percent annual
growth (see Exhibit 4-2). These data provide no support for the SAHBA study’s prediction of
2,710 lost construction jobs per year following critical habitat designation.
10
The “Tucson Metropolitan Area,” as defined by the U.S. Bureau of Census, encompasses all of Pima County.
10
Exhibit 4-2
Construction Employees in Tucson Metropolitan Area, 1996-2000
July 96-June 97 July 97-June 98 July 98-June 99 July 99-June 00
Number of Construction 19,010 20,070 21,230 22,340
Employees
Growth in Number of 5.6 % 5.8 % 5.3 %
Construction Employees
(Compared to Previous Year)
Source: Arizona Economy, Economic and Business Research Programs, Eller College of Business and Public
Administration, University of Arizona, July 2000.
5. SUMMARY OF FINDINGS
This study found no support for any of the SAHBA report’s predictions of negative economic
impacts from critical habitat designation. On the contrary, analysis of available data on key
economic indicators – housing starts, vacant land values, and construction activity and
employment – suggests that post-designation economic activity in critical habitat units 3 and 4
has continued at a pace similar to, and in many cases at a higher level than, pre-designation
activity.11
Housing Starts: Key Findings
Available data provide no support for the SAHBA study’s contention that critical habitat
designation would cause a dramatic reduction in high-density housing starts, and a
correspondingly steep drop in the number of acres developed for high-density housing (i.e., 800
fewer acres in the first year following designation).
• Since designation, high-density housing starts in critical habitat units 3 and 4
have increased by 34.2 percent. High-density housing starts have continued
to represent the vast majority of all housing starts (93 percent).
• The number of acres developed for high-density housing has increased by
43.6 percent since designation.
Value of Vacant Land Zoned For Residential Development: Key Findings
In contrast to the SAHBA report’s predictions of an immediate 80 percent drop in vacant land
values, fewer overall vacant land sales, and decreased sales revenue in critical habitat units 3 and
4, this study found the following:
• Vacant land values have increased since designation. The average vacant land
sales price per acre increased by 18.7 percent compared to the year preceding
11
All economic data are adjusted for inflation to 1999 dollars based on the consumer price index.
11
designation. It was up 8.3 percent compared to a three-year average of the price
per acre preceding designation.
• The number of vacant land sales after designation have continued at a pace
similar to before designation. Revenue from these sales has increased since
designation. The number of vacant land sales in the year after designation (45
sales) was in line with the number of sales in the three years preceding
designation (45, 41, and 48 sales respectively). Total sales revenue from vacant
land transactions increased from about $4.3 million in the year preceding
designation to $6.1 million in the year after designation.
Construction Activity and Employment: Key Findings
In contrast to the SAHBA report’s estimates of significant economic losses and 2,710 lost jobs in
the construction industry, this study found the following:
• Residential construction contract awards in the Tucson Metropolitan Area
have increased by 26.5 percent since designation.
• Construction job growth in the Tucson Metropolitan Area has continued at a
steady pace – about 5 to 6 percent annual job growth before and after
designation.
12
APPENDIX 1: DATA SOURCES AND METHODS
Data analyzed in this study were drawn from the following sources: Pima County Development
Services, Pima County Assessor’s Office, Town of Marana Planning Department, Tucson
Planning Department, and Arizona Economy, a quarterly publication of the Economic and
Business Research Programs at the University of Arizona’s Eller College of Business and Public
Administration. Where available, data were collected for the period from January 1996 to June
2000. All economic data are adjusted for inflation to 1999 dollars based on the consumer price
index.
It should be noted that a host of factors other than critical habitat designation affect property
markets and development activity, such as changes in economic and population growth, lending
rates, and local zoning and planning to name a few. Controlling for these factors is beyond the
scope of this study due to the data and resource needs. However, it is not expected that
controlling for these factors would change results in any significant manner. Unlike the
immediate and severe impacts predicted to result from critical habitat designation, these other
factors tend to cause more gradual economic impacts. For example, even if property values in
units 3 and 4 are rising due to increased economic/population growth, it is extremely unlikely
that property values could rise by a rate that would mask an immediate 80 percent loss in value
due to designation.
Defining “High-Density” Versus “Low-Density” Development
The SAHBA study defines high-density development as 3 to 4 units per acre and low-density
development as 1 unit per 3 to 4 acres. Another common zoning density – about 1 unit per acre
– is ignored by the SAHBA report; it is not defined as either high- or low-density development.
As data collected for this study reveals, this zoning density exists in critical habitat units 3 and 4
and therefore should not be ignored.
There are no set definitions governing how to group the variety of zoning classifications into
categories of “high-density” and “low-density” development. This study maintains the same
definitions of high- and low-density as the SAHBA report, but on the advice of the Pima County
Planning Department, adds the zoning density of about 1 unit per acre to the low-density
category. Exhibit A-1 shows how different zoning classifications are grouped and notes the
allowed residences per acre based on the minimum lot size.
13
Exhibit A-1
Zoning Classifications for “High-Density” and “Low-Density” Development:
Pima County and Town of Marana
High-Density Zoning Classifications
Pima County Town of Marana
Zoning Residences Per Acre Zoning Residences Per Acre
Class Code (Based on Minimum Lot Size) Class Code (Based on Minimum Lot Size)
CR-5 7.26 (6,000 sq ft) R-6 7.26 (6000 sq ft)
CR-4 6.22 (7,000 sq ft) R-7 6.22 (7000 sq ft)
CR-3 5.45 (8,000 sq ft) R-8 5.45 (8000 sq ft)
Low-Density Zoning Classifications
Pima County Town of Marana
Zoning Residences Per Acre Zoning Residences Per Acre
Class Code (Based on Minimum Lot Size) Class Code (Based on Minimum Lot Size)
CR-2 2.72 (16,000 sq ft) R-16 2.72 (16,000 sq ft)
CR-1 1.21 (36,000 sq ft) R-36 1.21 (36,000 sq ft)
GR-1 1.21 (36,000 sq ft) R-144 0.30 (144,000 sq ft)
SH 1.21 (36,000 sq ft) F Varies by plan
SR-2 0.60 (72,000 sq ft)
SR 0.30 (144,000 sq ft)
RH 0.24 (180,000 sq ft)
Sources: Pima County Development Services, Pima County Assessor’s Office, and Town of Marana
Planning Department.
Housing Starts Data
The Pima County and Town of Marana Planning Departments define a “housing start” as an
issued housing permit. All other permits and requirements to build on a parcel of land must be
met before a housing permit can be issued. Once a house is ready to be inhabited and all
inspections have been completed, a housing permit is finalized, referred to as a “finaled” permit.
It is very rare for someone to apply for a housing permit and then not finalize it. According to
the Marana Planning Department, only about two or three issued permits have not been finalized
over the past five years. Likewise, the Tucson Planning Department estimates that only about
1.5 percent of issued permits are never finalized.
Data on issued housing permits for critical habitat units 3 and 4 were provided by the Pima
County Development Services and Town of Marana Planning Department. Although a small
area of Oro Valley is also in units 3 and 4, this study was unable to obtain data on housing starts
in Oro Valley that are also in units 3 and 4. Given the small area of Oro Valley in units 3 and 4,
this omission is unlikely to affect overall results.
Where information on actual acreage was not available (e.g., with subdivision housing starts),
estimates are based on the residences per acre (RAC) listed on subdivision plat maps. According
to the Pima County Assessor’s Office and Pima County Planning Department, using available
RAC information is the most accurate method for estimating the acreage of these housing starts.
14
Data were not available at the time of writing for housing starts and acres developed from March
to June 2000. Housing starts and acres developed for these months are estimated based on a
comparison of data from July 1999 to February 2000 to the same eight-month period of the
previous year (July 1998 to February 1999). Comparing the same eight-month periods controls
for any seasonal variation. Exhibit A-2 shows data on housing starts and acres developed for the
eight-month periods and the percentage increase from before critical habitat designation to after
designation. These data were used to project housing starts and acres developed for March to
June 2000.
For example, there were 459 high-density housing starts from July 99 to Feb 00, compared to
342 housing starts from July 98 to Feb 99 – an increase of 34.2 percent. Therefore, the number
of high-density housing starts from July 99 to June 00 is projected to be 34.2 percent higher than
the 648 housing starts that occurred from July 98 to June 99 (i.e., 648 + (.342 * 648) = 870).
Likewise, there were 107.4 acres developed for high-density housing starts from July 99 to Feb
00, compared to 74.8 acres developed from July 98 to Feb 99 – an increase of 43.6 percent.
Therefore, the number of acres developed for high-density housing from July 99 to June 00 is
projected to be 43.6 percent higher than the number of acres developed from July 98 to June 99
(i.e., 143.7 + (.436 * 143.7) = 206.2).
Exhibit A-2
High-Density and Low-Density Housing Starts and Acres Developed in Critical Habitat Units 3 and 4:
A Comparison of Eight-Month Periods Before and After Critical Habitat Designation
Total High- Total Low- Total High- Total Low-
Density Density Total Density Density Total
Housing Housing Housing Acres Acres Acres
Year Starts Starts Starts Developed Developed Developed
Before July 98 – 342 44 386 74.8 82.5 157.3
CHD Feb 99
After July 99 – 459 44 503 107.4 110.4 217.8
CHD Feb 00
Percentage Increase 34.2% 0.0% 30.3% 43.6% 33.9% 38.5%
from Before CHD to
After CHD
Sources: Pima County Development Services and Town of Marana Planning Department
Vacant Land Sales Data
Data were collected from the Pima County Assessor’s Office on all sales of vacant land zoned
for residential development within critical habitat units 3 and 4 from July 1996 to May 2000.
These data indicate a total of 181 vacant land sales. Where available, the following information
was provided for each of these sales: parcel number, sales date, sales price, acreage, zoning
classification, and comments on the transaction.
In developing the data set for vacant land sales prices, the Pima County Assessor’s Office
recommended only including sales that are “arm’s length” transactions (i.e., sales conducted
between willing buyers and sellers with knowledge of the market). Sales made under special
circumstances, such as between relatives, may not accurately reflect land values. Based on
15
information regarding the circumstances of each sale, 19 sales were excluded from the vacant
land sales price data. Circumstances resulting in the exclusion of sales included the following:
• Buyer/Seller are related parties or corporate entities (8 sales)
• Sales price missing (5 sales)
• Sale involves exchange or trade (3 sales)
• Sale of partial interest (2 sales)
• Sale of convenience for nominal consideration (1 sales)
As a result, a total of 19 sales were dropped from the overall data set of 181 records, allowing for
the analysis of 162 sales price records. All vacant land sales prices were adjusted for inflation to
1999 dollars based on the consumer price index.
Data on vacant land sales were unavailable for the month of June 2000 at the time of writing. To
allow for a comparison of one-year periods before and after critical habitat designation, the
number of sales, sales revenue, and acreage sold for June 2000 were projected based on the
preceding 11 months. For example, total sales revenue for July 1999 to May 2000 was
$5,635,373. Therefore, June 2000 is projected to be ($5,635,373/11) = $512,307, and total sales
for the year of July 99 to June 2000 are ($5,635,373 + $512,307) = $6,147,680.
Construction Activity and Employment Data
Data on construction activity and employment are drawn from Arizona Economy, a quarterly
publication of the Economic and Business Research Program at the University of Arizona’s Eller
College of Business and Public Administration. Arizona Economy reports construction contract
awards information based on data compiled by F.W. Dodge, a private firm that tracks
construction activity in the region. Likewise, construction employment information is based on
data from the Arizona Department of Economic Security.
16
APPENDIX 2: PREVIOUS CRITIQUE OF THE SAHBA STUDY
In contrast to the SAHBA study’s predictions, an economic analysis conducted for the U.S. Fish
and Wildlife Service (FWS) by Industrial Economics, an economic and environmental consulting
firm, concluded that no economic impacts would result from critical habitat designation.12 This
finding was based on guidance from FWS staff that critical habitat designation for the pygmy-
owl would place no restrictions on land uses and activities above and beyond existing restrictions
from the Endangered Species Act listing of the pygmy-owl on March 10, 1997.
According to FWS staff, critical habitat designation would primarily play an informational role,
helping to focus conservation activities for the pygmy-owl by identifying areas, both occupied
and unoccupied by the pygmy-owl, that contain or could develop essential critical habitat
features. Designation would contribute to the awareness of federal land-managing agencies and
the public about the importance of these areas.13
The Industrial Economics study also highlighted significant flaws in the SAHBA study’s
approach and assumptions.14 These criticisms bear repeating, as they raise serious questions
about the likely validity of the SAHBA study’s estimates.
1. The SAHBA study fails to base property values on existing zoning at the time of critical
habitat designation. Instead, the study makes a baseline assumption that all
undeveloped private land has a value equal to land zoned for high-density development.
Most of the land in critical habitat units 3 and 4 was zoned for low-density development at
the time of designation. For instance, about 90 percent of the undeveloped private land in
Pima County (6,603 out of 7,418 acres) was zoned for low-density development at the time
of designation. In assessing economic impacts, property value estimates should be based on
current zoning, not on expectations of upzoning to high-density zoning classifications. As
Pima County officials have put it, “rezoning is a privilege not a right… there is no guarantee
that all the land planned for higher density development will be rezoned for it.”15 Even if
there is market speculation about upzoning of land currently zoned for low-density
development, present prices for the low-density land will reflect that speculation through
higher land prices.
12
McKenney, Bruce, Unsworth, Robert, and Rebecca West, Industrial Economics, Incorporated, “Economic
Analysis of Critical Habitat Designation for the Cactus Ferruginous Pygmy-Owl,” prepared for Division of
Economics, U.S. Fish and Wildlife Service, June 1999.
13
Ibid, p. 1.
14
Ibid, p. 41-44.
15
Comments of Sharon Bronson, Board of Supervisors Chairwoman, and Chuck Huckleberry, Pima County
Administrator, as cited in “Owl plan will cost Tucson area $8.5 billion, homebuilders say,” The Arizona Daily Star,
March 10, 1999.
17
The SAHBA study bases property values for all 15,000 acres of private undeveloped land on
“present prices for 3 to 4 units per acre,” whether the land is zoned for high- or low-density
development. As a result, the SAHBA study biases property values upward, which in turn
allows for claims of more significant property value losses.
2. The SAHBA study estimates gross tax revenue loss, rather than net tax revenue change.
The SAHBA study estimates significant tax revenue losses for Pima County and the Town of
Marana based on an assumption that critical habitat designation will result in lower
population densities in critical habitat areas. This approach fails to take into account the
additional costs that Pima County and the Town of Marana would incur if greater services for
higher density development were provided. For example, higher density development
requires greater public expenditures for schools, law enforcement, health care, parks, and
building and maintaining roads. High-density development can result in expenses to provide
additional services that are higher than the revenue generated by a larger tax base. Rather
than estimate gross tax revenue losses, the SAHBA study should estimate the net change in
tax revenue by taking into account the costs of providing greater services.
3. The SAHBA study fails to consider alternatives provided in a dynamic economy.
In making estimates of $8.5 billion in economic losses and over 100,000 person-years of lost
employment in the region, the SAHBA study fails to consider that if designation were to
restrict development in critical habitat areas as the study predicts, development and
construction activity would shift to alternative sites for development. Therefore, the impact
on economic activity and employment in the region would be far less than predicted by the
SAHBA study. Substitute areas for development appear to be plentiful in the Tucson
Metropolitan Area. According to Pima County Administrator Chuck Huckleberry, Pima
County has identified well over 100 square miles of non-environmentally sensitive, vacant
developable land in Tucson, Marana, and unincorporated Pima County.16 Because the
SAHBA study provides a static analysis that assumes no alternative opportunities for
development and construction activity, its estimates of economic and employment losses
grossly overstate the potential impacts.
16
Comment of Chuck Huckleberry, as cited in “Owl plan will cost Tucson area $8.5 billion, homebuilders say,” The
Arizona Daily Star, March 10, 1999.
18
