Real estate pricing research provides evidence that properties potentially exposed to perceived or actual risks may experience price impacts. Looking Under the Hood reviews publications that illustrate the theoretical, methodological, and data challenges scholars and practitioners face studying detrimental conditions and their effects on property values.
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Chamblee et al.[1] studied the property value impacts of potentially contaminated groundwater and surface water on vacant land prices in Buncombe County, North Carolina. This before and after analysis focused on the effects of listing the source site on the EPA's Superfund National Priorities List (NPL). The source property, a contaminated former industrial electroplating manufacturing site, was listed on the NPL in March 2012. This site had a history of off-site groundwater contamination from trichloroethylene (TCE) dating back to 1999. This groundwater contamination resulted in several negative externalities for the surrounding residents. For example, many Buncombe County residents were advised against drinking the water supplied by several private and public sources. As a result, four residences were connected to public water due to contaminated well water.
Buncombe County North Carolina Tax Department real estate sales data was collected and utilized in the hedonic analysis. This dataset of vacant land sales spanned from 1996 to 2012 was mapped using ArcGIS. This analysis included several explanatory variables such as physical characteristics, water quality characteristics, geology, and location. As part of the model specification, the authors utilized before and after dates to quantify the impacts.
Before public awareness, properties within the potentially contaminated shallow groundwater plume garnered a 242% premium compared to similar unimpaired properties. After public attention, the premium dissipated completely. After listing on the NPL, the hedonic output revealed a considerable discount for properties within the shallow groundwater plume. A 69% to 77% diminution in value was observed for properties within the shallow groundwater plume. [2] Properties potentially impacted by deep groundwater and surface water contamination did not experience any statistically significant property value diminution in this study.
[1] Chamblee, John F., Carolyn A. Dehring, Craig A. Depken, and J. Nicholson. "Water contamination and land prices in a mountainous landscape." (2014).
[2] This percentage is calculated based on the sample mean price of $182,486 compared to damage estimates of $42,806 to $55,906 (decline of 126,580 and $139,680).