without threatening the species must be used to bring about the protection of 1,000 acres (ASH). (Timing is important; the restoration of new habitat must be completed before existing habitat is eliminated.) In other words, PP, (the physical price when a species is on the brink of extinction) acres must be protected with a management agreement per acre eliminated. PPB = 5 [ASH/(PH + UH - ASH) = 1,000/(400 + 800 - 1,000) = 1,000/200]. Since it may be difficult to get a precise measure of PH, a conservative estimate of PH should be used in equations A-5 and A-6. The ratio PH/(PH + UH), or (200/(200 + 400) = (1/3)} defines the share of PP, that must be restored habitat. The remainder, B UH/(PH + UH), or [400/(200+ 400) = 2/3], of the acres to be covered by MAS could be existing habitat. If PH were large enough so that HPC transactions would produce a net habitat loss. To avoid that, the ratio of restored habitat to eliminated habitat should be no less than ASH/UH (or 1.25). In other words, when the amount of actual habitat is already too small, habitat elimination must be more than offset by restoration. Again, the eventual outcome of HPC purchases would be ASH = 0. Since habitat elimination would be more than offset by restoration, the policy would be analogous to the U.S. Environmental Protection Agency's (EPA) policy for areas with substandard air quality. EPA requires new polluters to more than offset their impact on air quality. Using the numbers introduced already, suppose a developer wants to build homes on a 10-acre property. To acquire 10 HPCs, he must pay the market value of a MA for at least 16.67 acres, or 10 x PPB x PH/(UH + PH) = (10 x 5 x 1/3 of restored habitat, and MAS for up to the other 33.33 acres, or = 50/3 acres, 10 x PPB x [UH/(UH + PH)] = 10 x 5 x 2/3 = 100/3 acres, for existing habitat. The net effect is a 43.33-acre decrease in UH (33.33 protected + 10 eliminated), and a 50-acre decrease in ASH, including 6.67 net new acres of habitat. than What if PH had been equal to 4,000, rather than 400? Then ASH/UH (1.25) is larger The 10-acre development would require a MA for 12.5 restored acres, and a MA for 0.44 acre, or 10 x PP x UH/(UH + PH) = 10 x 0.263 x 0.167, B of existing habitat. The net effect is a 10.44-acre decrease in UH, and a 12.94-acre decrease in ASH, including 2.5 net new acres of habitat. Since ti.e species was already endangered, a gradual decrease in the difference between the amount of secure habitat and the safe minimum amount could be an unaffordable luxury. There would be at least three ways to speed up the process. One way would be for the government to pay to quickly restore enough habitat to make up the initial difference between UH and ASH. Then, with UH = ASH, the subsequent demands for habitat elimination could be accommodated with Option B described previously, that is, by paying for an MA for one restored acre per acre eliminated. A second way for the government to speed up the restoration and deed restriction process (MA sale) would be by offering habitat producers an incentive bonus. This method would be analogous to Bean's (1992) proposal to "jumpstart" a proposed incentive program to protect and restore red-cockaded woodpecker habitat. The bonus would be set high enough to restore the additional desired habitat faster than habitat eliminators' HPC purchases would have done the job. This method should cost less than directly funding restoration, because on top of their incentive bonuses, the habitat producers would receive a partial HPC (missing the MA for the existing habitat share of PP) which they could sell per ASH/UH or [PP, x PH/(PH + UH)] acres restored. Subsequent habitat eliminators could acquire a full HPC by purchasing a partial HPC, plus a MA for PP, x [UH/(UH+ PH)] acres from UH. A third possibility would be to set the restoration component of PP above ASH/UH or [PP ̧ x PH/(PH + UH)]. That would decrease ASH more quickly if habitat eliminators' demand is strong and price inelastic. That is likely to be the case when PH is very large. If their demand is very price-sensitive (elastic), such a price increase would slow the decrease in ASH. Brokers' Viewpoint Impact of Habitat Protection on Property Values By Ted C. Jones, Brittany A. Burnam, Clinton H. Harrington and Roger J. Pelton Since its inception, the Endangered Species Act (ESA) has been fiercely and emotionally debated by landowners and environmentalists, with each side emphasizing extreme positions. The full state-wide impact on Mature Texas cedar trees are the battleground as both sides debate the value of the golden-cheeked warbler's habitat. Texas is not yet known because many species are still under consideration for the endangered designation. For example, battle lines are now forming over the potential listing of the Arkansas River shiner in the Texas Panhandle. The most direct method to measure ESA impact on Texas real estate markets would be a paired sales comparison approach used in the appraisal process. Such data, however, are limited and only give insight into historical transactions that may or may not contain the most current information. The Real Estate Center surveyed 6,000 Texas real estate brokers in the fall of 1994 in an attempt to gauge the impact, if any, of the ESA on Texas real estate in the previous decade and in the next five years. Brokers were randomly selected who, at their last license renewal, indicated spending at least 50 percent of their time in some real estate activity. Even in markets with designated habitat, not all property uses would be affected, nor would the impact on properties necessarily be equal. Six property types were analyzed: built-up urban real estate," developed but not-yet-built-on urban land, urban/ suburban fringe land, transitional rural land, farmland and rangeland. Because habitat is not uniformly distributed across the state, any impact from the ESA was anticipated not to be equally distributed. The survey included a map on which respondents shaded or colored the market area(s) on which their responses were based (Figure 1). Impact on Total Sales R isk is defined as uncertainty. To ascertain whether Texas real estate markets had an increased level of risk, respondents were asked if the ESA had changed the number of property sales across the entire market. Almost one-half of the respondents indicated that the impact of the ESA on the number of sales was unknown (Table 1). When these unknown responses are excluded, more than 70 percent of remaining respondents indicated a negative value impact on urban/suburban fringe land, transitional rural land, farmland and rangeland. The two property types with greatest risk (buying and then not being able to develop) are urban/ suburban fringe land and transitional rural land. For these higher-risk properties, most respondents indicated that the number of sales had declined as a result of the ESA. The level of uncertainty within the brokers, however, can not be overstated. In the framework of modern finance, the conclusion is that significant risk has been added to Texas real estate markets by the ESA. In a |