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

Amy Mall

Posted November 1, 2012 in Health and the Environment

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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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Comments

Michael BerndtsonNov 1 2012 06:22 PM

Very critical issue and great reporting Amy.

I've been mulling the issue of groundwater classification and property deeding with respect to fracking location for a while. My tinfoil-hat paranoia self worries that groundwater rights will be swooped up just as fast as fossil fuel mineral rights by companies that may benefit from doing such a thing. Maybe some private equity firm spearheading a venture with an independent water treatment and supply company for residential or bottle water use.

My hypothetical tinfoil hat scenario is as such:

Groundwater that was once classified for residential and/or agriculture use (i.e. clean and good to drink) becomes impacted by fracking operations. The classification gets downgraded to industrial (non-potable and bad to drink); reducing value. So a private water supply firm comes in and takes the groundwater rights and maybe property off the distress owner's hands. Groundwater remediation may be unnecessary due to deed modification and classification downgrade and cleanup goals having been "risked away."

Now with a wide swath of land and subsequent groundwater rights in place, the impacted groundwater becomes an asset because a much larger volume can be pumped and treated to potable (drinkable) conditions. Upon permitting this nicely treated groundwater can be sold to users for a profit. That would be the former property and private well owners. Even the simplest and smallest of groundwater treatment schemes is expensive for one private well.

Again that was a hypothetical and crazy scenario and not the truth. Hopefully.

Michael BerndtsonNov 2 2012 12:29 PM

It is common knowledge in the blogospher that proper etiquette is to comment only once. Of course, here's my second comment in response to Ryan's comment. Sorry in advance.

Real property is given a value based somewhere between -500% and +500% on emotions like hype and fear. And of course location, location, location. Impacts due to environmental damage perceived or real, may effect buyers decisions less then decisions made by mortgage lenders and insurance companies. Entities that base much of its businesses and profit on risk, perceived or real and what may fall back onto their laps. Which justifies them having both in house and contracted environmental consultants.

Amy MallNov 2 2012 12:42 PM

Dear Ryan: The federal EPA is currently conducting the first ever comprehensive investigation of the impacts of fracking on drinking water and has not yet released any findings. Late last year the EPA released an unrelated draft report on one investigation regarding the drinking water in Pavillion, Wyoming, where it found that “the
explanation best fitting the data for the deep monitoring wells is that constituents associated with hydraulic fracturing have been released into the Wind River drinking water aquifer at depths above the current production zone.” State regulators have found that natural gas production activities beyond fracking have contaminated drinking water aquifers in Wyoming, Colorado, Pennsylvania, and Ohio. In addition to drinking water problems, homes may lose value due to noise, visual, truck traffic, or air quality concerns if they are located near wellpads.

Mary SweeneyNov 2 2012 02:56 PM

It's stated above that the NBER working paper found that "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."

I'm wondering what happens in the case of properties that have a municipal groundwater supply--i.e. that have water that comes from one or more municipal water wells. This is a very common situation here in the Southern Tier of NY.

In the NY DEC's SGEIS, the proposed setback from a municipal water well is 2000 feet, which is a lot less than the 2000-meter distance in the NBER study. It is also less than the 3000-foot distance at which methane contamination was observed in a 2011 Duke study (see
http://www.nytimes.com/gwire/2011/05/09/09greenwire-study-finds-methane-contamination-rises-near-s-87464.html?pagewanted=all).

ICNov 5 2012 09:05 AM

In my personal experience and based on conversations I have had with local realtors, this is already happening in my region, the southern part of the Fingerlakes in NY (despite the fact that hydrofacking has yet to be approved).

Perception is reality.

When I was shopping for a house two years ago, for every property we looked at, we referenced a county map that highlighted properties with active mineral leases. Proximity to leased land and access to public water were the two biggest factors in our decision. Another factor that we took into consideration was proximity to state-owned roads, that could be subject to hundreds of large diesel truck trips per day. We didn't want to get stuck in these convoys, or be subjected to the 24/7 noise and pollution. We walked away from some pretty fantastic properties and deals based on these criteria (many of these properties languished for months prior to being pulled off the market or selling at a dramatically lower price than was being advertised). I would also venture that this is having a dramatic impact on more affluent buyers, who are considering a second home in the Fingerlakes. As long as there is controversy, they will probably hold off on making investments. On a final note, if any readers doubt my claims that the realtors and local banking industry are concerned about this issue, several local institutions (Tompkins Trust, in particular) have conducted analyses on this topic. The net-net, being that obtaining a mortgage on, or refinancing a property that has a mineral rights lease is difficult-to-impossible. What does this really mean? It means that if you need to sell your property and you have an active mineral lease, your pool of possible buyers has shrunk dramatically. No federal loans (VA, RSA, etc...), no mortgages, etc...You will need to find a cash buyer or finance it yourself. If you have a large property without public water, the odds continue to pile up against you. And it is highly likely that your neighbor's property values will also be impacted by your decision to lease your mineral rights.

Michael BerndtsonNov 7 2012 11:20 AM

Amy, those references on past blog posts are excellent. I clicked on a post of yours from 2011, which cited the Toxic Targeting website. Interesting stuff. Regarding the latest issue of open abandoned wells - if fracking happens within the confines of uplugged abandoned wells, all I can say is that's not good. Beyond the risk of little Timmy falling down a well, these wells can become a direct pathways (or superhighways) for migration of whatever during fracking operations and post completion - regardless of screen depth and well seal integrity and location with-respect-to current or proposed fracking operations.
You know your stuff.

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