Economic Activity Following Critical Habitat Designation

Vacant Land Sales

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).

Value of Vacant Land Zoned for Residential Development

* 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).

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.

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). 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 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. 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.

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.

Summary of 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.

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. 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.

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.

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.

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 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. 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. 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.

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. 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 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.

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.

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. As shown in Exhibit 4-1, residential construction contract awards in the Tucson Metropolitan Area have increased 26.5 percent since critical habitat designation.

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.

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.

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 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.

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.

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.

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).

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 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.

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. 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. Designa