Value of Water Quality

“Value of water quality through housing prices” – Hedonic study led by T. Liu and E. Uchida

This study examines the impact of water quality in Narragansett Bay on housing prices in coastal towns and cities using a hedonic housing-price model. A hedonic model is often used to estimate values for environmental or ecosystem services that directly impact market prices for homes. This work tests whether the housing markets in the coastal towns and cities of the region respond more to average water quality or more to extreme events. The spatial and temporal extent of the effects of water quality on housing prices over time and across the landscape are also estimated. The study finds that poor coastal water quality, measured in terms of the concentration of chlorophyll, has a negative impact on housing prices that diminishes with distance from the shoreline. Findings suggest that housing prices are most influenced by extreme environmental conditions, such as those indicated by things like unpleasant odors, discoloration, and even fish kills. The model was then used to predict potential increases in home values associated with water quality improvement scenarios. Results predict that improving water quality will lead to an increase in the values of homes in coastal communities along Narragansett Bay from $18 million to $136 million.

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