Paper Number: 2017-08
Document Date: 12/2017
Author(s): Megan Kung, Dennis Guignet, Patrick Walsh
Subject Area(s): Recreation, Valuation, Water Pollution
JEL Classification:
Q24 - Land
Q51 - Valuation of Environmental Effects
Q53 - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
Keywords: beach, enterococcus, hedonic, Long Island Sound, property value, water quality
Abstract: Hedonic property value methods typically examine the effect of water quality on home prices by focusing on waters nearest a home. While this captures any aesthetic values households may hold for water quality improvements, it may not fully reflect recreational values, particularly for nearby residents that do not live on the waterfront. This study is the first to compare the conventional approach of examining how property prices vary with the quality of waters closest to a home, versus water quality levels at the closest point of access for recreation (i.e., the beach). Using spatial econometric models, we conduct a hedonic analysis of residences within five kilometers of the Long Island Sound. Due to an aging infrastructure, high levels of precipitation often lead to sewage overflows, resulting in high counts of enterococcus – a bacterial indicator of fecal pollution. We also estimate the effect of subsequent beach closures, which we posit as an alternative and more salient signal of local water quality to residents. In line with previous literature, we find that enterococcus levels at waters nearest a home negatively affect home prices within 1 kilometer. However, this effect becomes insignificant when controlling for levels at the nearest beach. In contrast, enterococcus at the closest beach yields a negative 0.03% to 0.02% elasticity that extends 2.5 km. Controlling for beach closures suggests negative effects as far as 3.5 km from beaches. Our findings demonstrate that the impact of water quality on home prices may extend further than previously suggested by the literature, at least at large iconic waterbodies like the Sound.
This paper is part of the Environmental Economics Working Paper Series.
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