Border Effects in Suburban Land Use

BENOY JACOB

UNIVERSITY OF COLORADO – DENVER

DANIEL McMILLEN

UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN

Incentives for Non-Residential Land Use in Suburban Chicago

Suburbs rely heavily on the property tax for revenue (approx. 30%) Cook County has a classification system. Tax rates are the same for

all classes, but assessment rates differ. Current official assessment rates are 25% for commercial/industrial properties and 10% for Class 2 (6 units or fewer) residential. There is no homestead exemption for non-residential properties. Results: effective tax rates are about 3 times as high on average for non-residential.

1% point of the state’s 6.25% sales tax revenue is returned to the jurisdiction in which the sale takes place

Location Decisions within Suburbs

Access to the transportation network: Highways and major roads

Rail lines, mainly for industrial land use

Metra Stations

Incentives to locate firms near suburban borders if there are negative externalities associated with non-residential land use.

Do incentives vary by assessed value? Low-priced industrial properties may be particularly likely to be at border locations if they are more likely than high-priced properties to generate negative externalities.

Data and Empirics

All land parcels in suburban Cook County, 2003 assessment file.

1. Is the density of non-residential land use higher relative to residential land use near suburban borders? Also, relative to Chicago.

2. Multinomial Logit model of land use – commercial, industrial, relative to Class 2 residential. Controls for access to transportation and municipal fixed effects.

3. Regressions of assessed values for 2003 on proximity to suburban borders.

Evanston

Evanston Parcels (16,163 parcels)

Commercial (601) and Industrial (148) Parcels

Central Street Metra Stop

Industrial Uses:GarageStoreLaundry

Some Other Large Suburbs

90 Cities with at least 10 parcels in each land use

Kernel Densities 1

Kernel Densities 2

Kernel Densities 3

Descriptive StatisticsVariable Commercial Industrial Class 2Observations 25,019 11,575 524,987Distance from Municipal Line 0.304 0.247 0.299Within 1/16 Mile of Municipal Line 0.208 0.162 0.1061/16 – 1/8 Mile from Municipal Line 0.124 0.187 0.158Distance from Major Street 0.630 0.629 0.759Within 1/16 Mile of Major Street 0.054 0.012 0.0071/16 – 1/8 Mile from Major Street 0.080 0.042 0.027Distance from Metra Station 1.439 1.663 1.596Distance from Chicago City Line 3.642 3.219 4.528Distance from Highway 1.700 1.499 1.832Distance from Rail Line 0.661 0.428 0.872Distance from Quarter Section Boundary

0.091 0.114 0.119

Assessed Value 19.293 189.938 211.208Log of Assessed Value 9.663 10.768 11.271

Multinomial Logit Results: Class 2 Base

  Com.Fixed

EffectsInd.

FixedEffects

Within 1/16 Mile of Municipal Line0.466

(0.017)0.485

(0.018)0.604

(0.027)0.569

(0.029)

1/16 – 1/8 Mile from Municipal Line-0.118(0.020)

-0.108(0.021)

0.375(0.025)

0.314(0.027)

Within 1/16 Mile of Major Street2.079

(0.035)2.091

(0.036)0.352

(0.088)0.175

(0.094)

1/16 – 1/8 Mile from Major Street1.114

(0.026)1.132

(0.027)0.198

(0.048)0.154

(0.051)

Distance from Metra Station0.008

(0.007)-0.150(0.014)

0.277(0.007)

0.473(0.022)

Distance from Chicago City Line-0.047(0.002)

-0.130(0.009)

-0.045(0.004)

-0.406(0.015)

Distance from Highway0.016

(0.006)-0.020(0.011)

-0.093(0.009)

-0.296(0.019)

Distance from Rail Line-0.450(0.013)

-0.358(0.019)

-1.999(0.030)

-2.307(0.036)

Distance from Quarter Section Boundary-13.011(0.155)

-13.111(0.156)

-1.804(0.206)

-2.091(0.214)

Log Assessed Value Regressions: FE for 90 Cities

Variable Class 2 Commercial Industrial

Within 1/16 Mile of Municipal Line0.059

(0.003)-0.003

(0.022)-0.223

(0.036)

1/16 – 1/8 Mile from Municipal Line0.040

(0.003)0.161

(0.026)0.103

(0.032)

Within 1/16 Mile of Major Street-0.087(0.011)

-0.081(0.038)

-0.164(0.112)

1/16 – 1/8 Mile from Major Street-0.063(0.006)

-0.026(0.031)

-0.095(0.061)

Distance from Metra Station-0.015(0.002)

0.047(0.018)

0.299(0.027)

Distance from Chicago City Line0.032

(0.001)0.125

(0.011)-0.004(0.018)

Distance from Highway-0.012(0.001)

-0.083(0.013)

-0.067(0.021)

Distance from Rail Line0.101

(0.002)0.443

(0.022)-0.033(0.035)

Distance from Quarter Section Boundary0.155

(0.019)1.131

(0.184)1.663

(0.251)R2 0.337 0.306 0.303Number of observations 524,987 25,019 11,757

Spline Predicted Values

Conclusions

1. Parcels near municipal borders are significantly more likely to be in commercial or industrial use.

2. Assessed values of properties near municipal borders tend to be much lower for non-residential properties relative to the interior of a municipality.

3. Borders have a significant influence on the pattern of land use in the Chicago area.