New economic study: fracking risks reduce value of properties dependent on groundwater

There is a new National Bureau of Economic Research (NBER)* working paper, from researchers at Resources for the Future and Duke University, on the effect that proximity to a shale gas well can have on property values. The researchers looked at more than 19,000 properties sold over a five year period in Washington County, Pennsylvania, and controlled for neighborhood amenities and other factors. Among the findings:

  • Concerns about groundwater risks associated with drilling "lead to a large and significant reduction in property values" and "These reductions offset any gains to the owners of groundwater-dependent properties from lease payments or improved local economic conditions, and may even lead to a net drop in prices."
  • Well drilling seems to have impacts on properties up to 2000 meters from a well --more than a mile.
  • Properties dependent upon groundwater for their drinking water are more likely to experience negative changes in property values than properties that get their water from a piped-in municipal water supply.
  • Local economic development and lease payments associated with shale development can boost the housing market substantially, but only if the property has access to a public water supply.
  • The researchers estimate that properties that get their water from public drinking water supplies saw increases in value of 10.7 percent, and speculate that this increase is most likely due to lease payments.
  • The researchers estimate that these positive gains from lease payments were fully offset for properties that depend on private drinking water wells. This is due to the perceived risk to groundwater, which is estimated to decrease property values by 23.6 percent if there is a wellpad within 2000 meters.
  • Net negative impacts on property values could lead to "an increase in the likelihood of foreclosure in areas experiencing rapid growth of hydraulic fracturing."

We've blogged before about individuals who live near natural gas wells and want to move away, but whose property values have dropped too much, or who have not been able to sell their property at any price, or whose buyers have problems getting a mortgage. Families with contaminated drinking water are truly stuck unless they can find a new source of drinking water. Research such as this is very important to accompany these real life stories with data, and underscores the need for much stronger rules to protect drinking water sources from the risks of fracking. 

*Despite its official sounding name, NBER is a private, non-profit entity, not a government program. The paper is also available for free on the website of Resources for the Future.

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