03 Aug

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 faced by scholars and practitioners studying detrimental conditions and their impacts on property values. 

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Alzahrani and Collins [1] conducted a research study to examine how water supply reliability and boil water notices affected rural house values in Marion County, West Virginia. A Boil Water Notice (BWN), also referred to as a Boil Water Advisory, is typically issued in response to the presence of a known or suspected microbial contaminant in the water distribution system, often resulting from water main breaks. BWNs were issued in Marion County when the municipal water supply became contaminated, and residents were advised to boil water before using it. Marion County began to maintain a database of BWNs in 2012. The study took place when approximately 95% of the county's residents were connected to municipal water, and the area faced problems with water use reliability primarily due to aging infrastructure. 

To investigate this issue, the authors employed a spatial hedonic price model and gathered data from property transactions between 2012 and 2017, resulting in 1,985 observations from the Marion County Assessor. Information on boil water notices was obtained from the West Virginia Office of Environmental Health Services (OEHS). Throughout the study period, around 350 instances of BWNs were observed. To calculate linkages, GIS mapping techniques were utilized to pair the transactional data with the BWN information. Water supply reliability was quantified using two variables: the first measures the duration of a BWN in the year before the sale, and the second variable is a dummy variable that states whether a sale was impacted by a BWN within one year prior to its sale. 

The research findings revealed that boil water notices had varied impacts on real estate values. For properties within the lower 60 percent quantile, BWNs were found to have a statistically significant negative effect on residential values. Moreover, for properties that experienced both a BWN and a one-day water disruption, a decrease in property value was observed ranging from 0.6% to 8.4%. However, for high-priced houses falling within the 0.7 quantile, no noticeable decrease in property value was detected due to BWNs. Overall, the authors concluded that since most properties in the county experienced multiple water disruptions caused by BWNs, residential values were likely to have declined by approximately 1% to 10%. The findings imply that BWNs can have a detrimental effect on property values, particularly for lower-priced houses.

[1] Alzahrani, Fahad, and Alan R. Collins. “Impact of Public Water Supply Unreliability on Residential Property Prices in Marion County, West Virginia.” Agricultural and Resource Economics Review, 2021, 1–25.   

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