When looking to purchase or rent a new home, people typically check where the nearest public park is along with other local amenities such as cafes, schools and public transport. This is because they value having open spaces nearby for recreation, exercise and access to natural areas.

Such places offer respite from city living, never more so than now when people need to physically isolate to stop the spread of COVID-19. In parks, people can still walk, exercise and sit alone or with a friend at the recommended distance. Research shows that even being able to see green space from your home is good for your mental wellbeing.

Open spaces, like parklands next to rivers, provide places for people to walk, play, cycle or just enjoy nature.

People value urban open spaces, but planners rarely consider their economic value

In Australia’s sprawling urban environments, there is growing recognition of the value of preserving and restoring existing open spaces and natural areas, as well as ensuring areas are included in new developments for parks, cycle paths and walkways. These are some of the key ingredients of ‘liveable cities’.

Open spaces within the urban environment offer us tangible benefits. As well as being places to exercise and to play with family and friends, they are used to commute to and from work. However,there are also less obvious benefits in having open spaces with natural vegetation.

Natural vegetation can trap rubbish from being washed into waterways, it can store carbon, and it can cool down an area through shading. It also provides habitat for wildlife, and people are attracted to nature.

While the aesthetic values of natural areas and parks are clear, having natural vegetation along our waterways expands the benefits: it will likely improve the water quality and decrease costs related to water-pollution – and it increases the attractiveness of waterways to people.

Yet the full value of our open spaces is rarely considered in the planning decisions made by governments or developers.

Natural vegetation along waterways is valued by people and also improves the quality of water flowing in our waterways.

Decision-makers need to be aware of the benefits of our open spaces so they can make more informed policy, planning and investment decisions. Governments have limited budgets and if they know the true value of investing in parks and natural areas, they can justify expenditure in this area.

Putting a dollar figure on the value of urban open spaces

It is important to calculate the full value of benefits that open spaces bring.

Typically, while we are aware of the intrinsic value of open spaces, they are not traded commercially on any markets. This means urban areas have not had the funding needed for providing quality and accessible open areas.

It costs money to preserve and restore natural areas, and all governments have limited budgets, but if we can put realistic dollar figures on the value of open spaces then decision-makers can justify their spending on urban parks and waterways.

One way that economists can put a value on our urban open spaces is to consider the “ecosystem services” they offer.

Ecosystem services are the benefits to society which flow from natural ecosystems (or natural capital). For example, people benefit from their food coming from healthy soils, and the quality of their drinking water is improved by healthy rivers, creeks and catchments. The enjoyment we get from aesthetically pleasing natural environments is also an ecosystem service.

Yet, while people do not buy or sell ecosystem services, these services affect their lives, especially if they are not managed well. People will also pay extra for other goods, such as housing, if they can access good quality open spaces that have recreational facilities and offer a pleasant environment to relax in.

Economists can therefore look at people’s willingness to pay for such ecosystem services.  This is one way of quantifying such non-market goods.

The relationship between natural capital and human well-being

Open spaces deliver traffic decongestion, premium property prices, recreation facilities and savings on health costs: case study of Moreland City

In 2018, the Victorian Department of Environment, Land, Water and Planning sought to understand the economic value of investing in urban spaces, particularly by improving the natural environment, accessibility and aesthetics of open spaces.

Natural Capital Economics, in conjunction with Mosaic Insights, carried out the study, using an ecosystem-services framework to identify, scope and then value the benefits of open spaces.

The City of Moreland, a local government area in metropolitan Melbourne, was chosen as a study area. It covers 5,000 ha, about 20% of which is open space and includes a golf course.

The open space contains a number of pathways and cycleways connecting homes to shops, hospitals and other services. One of the largest uses of Moreland’s open spaces was for commuting to work.

This work found that the percentage of people cycling to work is four times greater than elsewhere in Melbourne. It was estimated that the value of this for reducing traffic congestion is conservatively about $700,000 a year.

However, the largest benefit by far was in increased property prices. Depending on the location of the parks and the property type (house or flat), green spaces were found to increase the value of property by an average 2.6%, which is equivalent to an additional $22,900 for houses and $13,700 for flats.

The map below shows the location and size of open spaces across the council area.  The different colours indicate the impact that these open spaces have on nearby properties. Open spaces marked with a dark green colour are where open spaces have the highest positive impacts on the prices of nearby properties of 6% to 7%, whereas red coloured open spaces indicate a minimal impact of 1% to 2%.

Map showing the location of open spaces in the City of Moreland and their estimated impact on increasing prices for nearby houses

Once you understand the value of ecosystem services, you can better consider investing in such services.   It helps decision-makers better consider trade-offs. It changes the way planning applications and approvals work.

Policy makers can think, manage and invest in natural areas using the same toolbox they use to manage things that are built like bridges and toilet blocks. This opens up opportunities for co-investment in green space with stakeholders, like developers, who are likely to benefit.

The two other major ecosystem services from Moreland’s open spaces were the recreation value, which was estimated to be $9.1 million a year based on people’s willingness to pay for such recreational amenity. The higher levels of physical activity attributable to access to the parks also results in savings on health costs estimated at $13.6 million a year.

The overall benefits from Moreland’s open spaces are calculated to be about $94 million a year, although this value could range between $74 million and $124 million depending on the assumptions used.

However, there was insufficient data to put a dollar figure on all the ecosystem services that open spaces offer in Moreland (such as improved air quality and mitigation of climate extremes) so these figures should be considered conservative.

We believe that with astute research to establish more robust values for ecosystem services, this framework can be applied elsewhere to inform policy, planning and investment in urban open spaces.

Putting a value on healthy waterways: Cooks and George’s Rivers, Sydney

While Buyani Thomy was at Charles Sturt University, he did his PhD on the effect of the condition of nearby waterways on property values. He specifically looked at 11 local government areas in southern Sydney that are located in the Cooks River and Georges River catchments.

Building on biophysical and ecological assessments, we developed an index to identify the health and quality of 750-metre segments of these rivers.  The project looked at properties close to each segment and traced the price of those properties as the health of the waterway changed.  The work also looked at factors like population demographics and house structures, the proximity of properties to the CBD, public transport, schools, and reported crimes. In this way, we teased out the benefits derived from waterways compared to other factors.

Where the river segment was in poor quality – for example, little vegetation with water flowing along a concrete channel – there was not much impact on house prices. But where the river was meandering more naturally with patches of natural vegetation, people were much more willing to pay a premium to live near these waterways.

 Researchers look at the quality of a stream segment based on its vegetation and riparian [channel] condition or VRC index (Source: Morrison et al., 2016])

 House prices were increased from 1% to 9%, depending on the quality of the nearby waterway. This provides evidence to water managers that restoring the natural meander of rivers and improving natural streambank vegetation will deliver public and private benefits.”

The evidence also provides opportunities for local governments to negotiate with developers.   If the local government is looking to upgrade a local waterway and is looking to put a park space in, they could adjust the developer contribution to reflect the fact that residences built close to parks will likely sell for more.

Using ecosystem services and non-market valuation to meet the policy challenge

The Alluvium group use ecosystem services to scope and identify the benefits of open spaces. They then use non-market evaluation approaches to quantify those benefits. Once dollar figures have been derived, they can help identify the trade-offs and ultimately prioritise different projects within open-space budgets.

A business case can also be made for investing in and applying for funding for developing or restoring open spaces.

The policy challenge is to identify the ecosystem services, understand their value economically and how those values are distributed across stakeholders, and then to incorporate this into planning, regulations, investments and broader policy interventions.

But this is not a new way for governments to make decisions. Rather, it is about mainstreaming the value of ecosystem services into their current decision-making processes.

It is about widening their eyes, so they recognise green spaces as an asset just like a park bench or a bridge.


For further information:

Dr Buyani Thomy, Natural Capital Economics, buyani.thomy@nceconomics.com

Jim Binney, Natural Capital Economics, jim.binney@nceconomics.com