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Hot Commodity: Waterside Real Estate

By Jill Jentes Banicki,
Ohio Sea Grant Communications

You may not think water clarity could be something to list as a home asset, but if you’re a Lake Erie shoreline property owner, you may want to think again. New Ohio Sea Grant research by Drs. Elena Irwin and Tim Haab of Ohio State University finds that cleaner shoreline water can bring higher re- turns when selling a waterfront property on Lake Erie.

Like much of the waterfront property around the country, the demand for shoreline property bordering Lake Erie’s eight Ohio counties has skyrocketed over the past 20 years. Residential development across the 27-mile stretch of shoreline has grown considerably, with amenity-packed counties like the Port Clinton area’s Ottawa County increasing its urban shoreline areas even more.
As with most things, a growing demand sparks higher prices, and waterfront properties around Lake Erie are no exception, with average home prices in many areas starting at $500,000.

But could environmental amenities like clear lake water and nearby beaches have contributed to those housing prices being higher? Irwin’s research finds they do.
“We knew from previous work that lake amenities like clean beaches, recreational amenities, and clear water are valued by individuals, however, we wanted to see if such amenities could actually influence housing prices around the Lake and if so, by how much,” states Irwin.

To do this, Irwin and Haab worked with graduate student Shihomi Ara to collect historical housing information from four predominantly-residential Lake counties, as well as data on the water quality associated with Lake Erie beaches.

“People view houses not as one good, but as a bundle of goods—house size, number of bathrooms, school district, and proximity to retail are a few of the factors that potential buyers evaluate when purchasing a home,” explains Irwin. “We wanted to add an environmental variable like water quality as one of those goods and compare it with the more traditional home amenities.”

Using two variables to define water quality, Irwin, Haab and Ara examined (1) fecal coliform bacteria data to average water quality over time and (2) secchi disk depth readings to average water clarity. They compared the bacteria and water clarity averages associated with the closest beach for each house and tested whether changes in these environmental variables had any impact on property values.

What they found was when water clarity and quality increased, so did property values. But the amount changed drastically depending on which—water quality or water clarity—you were evaluating.

“When bacterial counts in the water decreased to below beach advisory levels (200 bacteria counts per 100 milliliters) in one of our hypothetical scenarios, the price of an average home increased by 0.1 percent,” explains Irwin.

“However, when water clarity (how far you can see into the water) increased to two meters, the price of that home increased considerably more, to between four to five percent.”

These increases in property values, Irwin points out, tell us that homeowners value both clear and clean Lake Erie water. “But that five percent gain shows us that water clarity matters more,” says Irwin.

Just how much more? Irwin compared increased water clarity to other home amenities such as home square footage, number of bathrooms, and school district ranking. What she discovered was that increasing the water clarity to two meters was the dollar equivalent to having that house in a better school district.

Proximity to a beach also added value to waterfront property. A house that is 10 miles closer to a beach would sell for an average of $11,880 more than the identical house located farther away. That $11,000+ gain is equivalent to the resale value of adding a fireplace.

“It’s important to remember that these numbers are higher-end estimates because they assume no market changes. Nonetheless, this research shows that there is a direct link to environmental amenities and increased economic value—if we increase the Lake’s water quality or if a house is close to a beach, property owners can profit by a specific dollar amount,” says Irwin.

The hope is for policy makers and elected officials to try to strike a balance between economic growth and conservation management. “Cleaner, clearer water is a long-term managerial goal but we hope this data will show policymakers that there is a large dollar benefit (to their waterfront property owners) to make it a priority,” concludes Irwin.

Irwin, Haab, and Ara plan to expand on their research later this year by establishing exact benefits to water quality changes and estimating how other variables like beach advisories may affect housing values.

For more information about this Ohio Sea Grant funded project, contact Dr. Elena Irwin at 614.292.6449 or irwin.78@osu.edu.

Reprinted with permission from Summer/Fall 2006 issue (vol 28, no 3/4) of Twine Line, Ohio Sea Grant's newsletter.

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