| "They found that both water clarity and quality correlated with increased property values." |
When buying a house near the shore, do people pay more for environmental amenities such as water clarity and quality? Residents living around Lake Erie do, according to researchers in Ohio.
The study on the value people place on water clarity and quality is part of the broader research question being pursued by Ohio State University faculty of "How do people interact with the lake?"
"In almost any management area, understanding human behavior and how humans respond to the lake or ecosystem being managed is as important as understanding the ecosystem itself," says Elena Irwin, associate professor in the Agricultural, Environmental, and Development Economics Department at Ohio State University.
Irwin and fellow university researcher Tim Haab hope the answers to their broad research question will help coastal resource managers better balance environmental economics with ecology.
Building Boom
There are many different ways that people interact with the coastal environment, Irwin says.
One of the ways, she says, is that Lake Erie and the rest of the nation's coastline "provide amenities to people, and people value amenities. That can affect people's behavior in a variety of ways. It influences recreational choices, which can lead to economic development, an increase in commercial services, and can impact housing values."
Like coastal property around most of the country, Irwin points out that the development of and prices paid for homes on Lake Erie's shoreline have "grown tremendously" in recent years.
"We've seen an increase not just in second homes, but an increase in permanent residences and lake recreation, as well." She notes a small island off the shoreline of Ottawa County that has gone from being "mainly the location of a Civil War graveyard and modest second homes to year-round or second homes for very wealthy people, selling for $1 to $1.5 million."
The conundrum for coastal managers is balancing people's attraction to the amenities of the coast and the resulting economic growth with the ecosystem impacts that result from that influx of people and development.
"Our question," Irwin says, "was if people value the lake's amenities such as water clarity and water quality strongly enough, will it show up in terms of the capital value of homes around the lake?"
Finding the Answer
With funding from Ohio Sea Grant and the help of graduate student Shihomi Ara, Irwin and Haab worked for two years to answer that question.
Most of the data they used in the study was secondary data, Irwin says. Information on housing values—and the homes themselves—was collected from each coastal county's tax assessor office. They were able to plug in the housing costs and corresponding information, such as number of bedrooms and bathrooms, size of the house and lot, and location, into a geographic information system (GIS).
They were then able to use the GIS to find out general information, such as how far the homes were from lake access points, major centers of employment, and any polluting activities, and even the home's school district.
Data on water clarity from secchi disk depth readings and on water quality, including fecal coliform bacteria data, were also plugged into the GIS.
A statistical model was used to compare bacteria and water clarity averages for the beach nearest each house with the sales price and information about the homes. This enabled the researchers to determine how changes in water clarity or quality impacted property values.
Capital Returns
The researchers found that both water clarity and quality correlated with increased property values, but "water clarity seems to have the biggest bang for the buck in terms of housing price," Irwin says.
"If you increased the depth of water clarity by two meters, it was found to increase the average housing value by $4,300," she explains. This is an increase of between four and five percent of the average home value in the study region.
"Looking at water quality in terms of bacterial counts, when there were no beach closings, had a slightly positive effect" of increasing the price of an average home by 0.1 percent, or a little more than $100.
The finding also showed that proximity to the beach and beach access points also increased the value of a home.
Quantitative Evidence
What the study didn't pick up, she says, is the amenity value of having waterfront property. Their study also only looked at home value and did not take into account visitors' use of the lake. The researchers plan to continue their study and hope to tease out additional information on the relationship between Lake Erie's environment and economy.
"We measured one aspect of that," Irwin says, "but there are many other ways that improvement or decline of lake functioning impacts the economy.
"Our numbers are upper-end estimates of what the home value could be, because they assume no market changes, but this does provide quantitative evidence that people value the lake's amenities and that there is an economic impact from having a healthy lake."
This information can give policy makers some idea of the magnitude of the impact a functioning coastal ecosystem can have on the economy.
"The take-home message," Irwin says, "is that improved water clarity is a benefit. Lake managers should have the lake water quality in mind as they prioritize and make decisions and goals related to a healthy ecosystem."
For more information about this OhioStateUniversity research project, point your browser to http://ohioseagrant.osu.edu/_documents/twineline/v28i4.pdf. You may also contact Elena Irwin at (614) 292-6449 or irwin.78@osu.edu.
Adding Resale Value to Average Homes around Lake Erie
Lake Amenities
Increased water quality, eliminating beach advisories......... $108
Increased proximity of house to nearest beach (per mile).... $750
Improved water clarity to depth of two meters..................... $4,308
Traditional Home Amenities
Additional bathroom........................................................ $7,270
Additional fireplace.......................................................... $10,807
Improved school system ranking by 10 percent.................. $3,764
Information from OhioSea Grant
