A number of hedonic studies report that proximity to a water body increases the value of residential properties, yet many lakes around the world show acute environmental stress (e.g. falling water levels, and pollution) due to water transfer agreements, persistent droughts, and polluted urban or agricultural runoff. Inland water bodies suffer especially from air pollution and falling water levels that contribute to worsening air quality due to the exposure of desiccated lake shores. To our knowledge, however, no published hedonic study has jointly analyzed the economic costs of falling water levels, deteriorating water quality, and the resulting regional air quality impacts for a large inland water body. We conduct such an analysis with an application to the Salton Sea, which is the largest lake in California. In our study we specifically use hedonic regression models to analyze the relationship between distance to the sea and local environmental conditions (e.g. water levels, water clarity, and air quality) on single family home transaction price.
The Salton Sea is a saline lake located in California’s Sonoran desert. In recent decades, the agricultural runoff from surrounding farms has led to severe levels of saline within this land locked sea. The nutrient loading has caused environmental hazards such as massive fish die-offs, as well as looming sulfur odors. The eutrophication process will be further exacerbated in the coming years due water transfer agreements, which will severely reduce water inflow into the sea and further increasing salinity. Additionally, as waters recede, the sea’s shorelines, along with the remaining salt levels, will become a potential source of harmful fugitive dust in the form of particulate matter PM10 , thus threatening the health of the local population, which primarily consist of agricultural farm workers and their families.
Given the problems associated with the sea, we use a spatial hedonic regression model to see if distance to the sea, dropping water levels, deteriorating water and air quality are negatively capitalized in the surrounding real estate values.
Our analyses of single family properties, from 2009-2013, within 10 miles of the sea indicate that proximity to the Sea is negatively capitalized in the surrounding real estate market. On average, a one-mile reduction in distance to the Sea is associated with a $1,190 fall in the price of a single-family residence. In addition, a one-foot drop in the Sea’s annual water level is associated with a $8,628 price decrease, while a one mg/m3 increase in annual PM10 concentration reduces the value of the average family residence by $1,249. Water quality is not statistically significant. These results quantify some of the economic costs associated with the severe environmental degradation of desert lakes and illustrate the connection between water quality, water levels, and air quality. Property values are an important source of revenue for any community. We show that further environmental deterioration of the Salton Sea negatively impacts property values, as well as the community’s revenue.
