UH Hilo physics professor part of collaborative study on role of modern financial instruments in driving rapid land conversion

The authors sought a better understanding of why conservationists and natural resource managers have lost ground in the past 20 years in relation to lucrative development properties funded at rates faster than the human population growth rate.

Philippe Binder

Professor of Physics Philippe Binder at the University of Hawaiʻi at Hilo co-authored a paper that explores the role of modern financial instruments in driving rapid land conversion. The authors conclude by encouraging work on land-use change that focuses on a better understanding of the mechanisms linking land developers to financial markets, and cross-disciplinary research that recognizes linkages between financial innovations and ecological health, leading to the development of better policies.

Binder, working at the College of Agriculture, Forestry and Natural Resource Management, collaborated with Kathleen Sealey from the University of Miami and King Burch, an independent finance and real estate researcher based in Honolulu, to produce the study, “Financial credit drives urban land-use change in the United States,” published in the March 2018 issue of Anthropocene.

The authors sought to gain a better understanding of why conservationists and natural resource managers have lost ground in the past 20 years, more species are in decline, more protected areas are increasingly isolated with threats from development on all sites and large, lucrative development properties were proposed, approved and funded at rates faster than the human population growth rate.

Abstract

Land-use change in the United States is a significant factor in environmental degradation, and occurs at a faster rate than population growth. This paper develops the hypothesis that modern financial instruments and the creation of tools that increase reliance on debt have the undesirable consequences of run-away land-use change, particularly in residential home construction. After reviewing the factors leading to increased housing development and land use change, the paper elucidates the role of modern financial instruments in driving rapid land conversion. The theory is based upon accounting of sources and uses of capital. Financial innovations, especially in credit creation and trading through global capital markets, can help explain the link between land-use change and finance. Available data from a study of modern real estate development supports the role of financial debt as the primary driver for land use change in South Florida. The mechanisms behind development financing address key policies and practices that have led to unsustainable land cover change. We encourage work on land-use change that focuses on a better understanding of the mechanisms linking land developers to financial markets, and cross-disciplinary research that recognizes linkages between financial innovations and ecological health, and that leads to the development of better policies.

The research covered a three-year period, and included construction of a case study for South Florida to examine the complex, coupled systems of finance and land use change. Their findings concluded that the driver for the housing boom was the increased availability of credit, and the ability to transfer investment risks, which allowed more people to buy more expensive houses.

 

Media release.