Housing Market Fluctuations and the Implicit Price of Water Quality: Empirical Evidence from a South Florida Housing Market

Abstract

In this study we utilize a hedonic property price analysis to examine changes in the implicit price of water quality given housing market fluctuations over time. We analyze Martin County, Florida waterfront home sales from 2001 to 2010 accounting for the associated significant real estate fluctuations in this area through flexible econometric controls in space and time. We apply a segmented regression methodology to identify housing market price instability over time, interact water quality with these identified market segmentations, and embed these interactions within a spatial fixed effect model to further account for any spatial heterogeneity in the waterfront market. Results indicate that water quality improvement is associated with higher property values. We find no evidence that the economic downturn O. Bin et al. crowded out concern for the water quality in this area. We further impute an implicit prices of $2614, evaluated at the sample mean, for 1 % point increase in the water quality grade.

Modeling the Property Price Impact of Water Quality in 14 Chesapeake Bay Counties

“…Although some studies find implicit prices to be unaffected by swings in the housing market(Leung et al, 2007), others find the opposite(Shimizu and Nishimura (2007), Chen and Hao (2008)). Also,Bin et al, (2015) examine the hedonic implicit price of water quality in Martin County, Florida, during the recent recession and find that the implicit price of water quality is still significant during the recession. 8 http://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx…”

A Comprehensive Review of the Evidence of the Impact of Surface Water Quality on Property Values

“…Contrary to expectations, the amenity value (in percentage terms) of water quality was found to be constant for lakefront properties over the study period , suggesting that appreciation of good quality water is insensitive to fluctuations in economic conditions. Bin et al (2015Bin et al ( , 2016 [45,46] confirmed Gorelick's (2014) [44] finding that homebuyer value associated with water quality is resistant to economic downturn. The study was one of the most advanced of its kind, commencing with a segmented regression to identify breakpoints in the data (based on median prices and number of sales) to allow these turning points to be accounted for in the spatial error hedonic modeling that followed.…”

Examining Spatial Heterogeneity Effects of Landscape and Environment on the Residential Location Choice of the Highly Educated Population in Guangzhou, China

“…Near positive landscape and environment (NPLE): This comprises of parks, waterfronts, and famous landmarks which enhance the landscape and environment. Parks [24,45,46] and rivers or lakes [25,26,47] not only create a pleasurable landscape but also improve the environment (such as purifying the air) and boost the microclimate (such as reducing the urban heat island effect) [48][49][50]. As places of daily leisure, these elements have a significant impact on residents' choice of location [21].…”

“…Such an impact is divided into two forms: a) residents tending to move closer to positive landscapes and environments [17][18][19][20][21] and b) residents tending to stay away from negative landscapes and environments [22,23]. For the former, studies have found parks [24], trees [18], waterfronts [17,25,26], and landmark buildings [27,28] to be attractive to residents. Meanwhile, for the latter, studies have identified transportation infrastructure (such as airports, highways, and railways) [29,30] and municipal infrastructure (such as high-voltage corridors, substations, sewage treatment plants, landfill sites, and signal towers) [31,32], factories [33,34], and logistics centers and wholesale markets [34] to be repelling elements in residential location choices.…”