The Spatial Extent of Water Quality Benefits in Urban Housing Markets

Federal efforts are increasingly targeting surface water quality in urban watersheds throughout the U.S., as demonstrated by recent litigation between the EPA and the State of Florida. While the cost of achieving federal standards is ultimately borne by taxpayers, pollution abatement may generate diverse and wide-reaching taxable benefits. This study investigates the effects of enhanced water quality on property prices in urban housing markets. Hybrid specifications of hedonic price models employed in water quality and proximity valuation studies are estimated, and several hypotheses about the implicit value of water quality are tested. Findings indicate i) the value of increased water quality depends upon surface water size and declines rapidly as proximity to the waterfront diminishes, though the mean effect remains significant at several hundred meters; and ii) when housing density is considered, the aggregate benefits derived in the broader housing market may dominate those realized by waterfront homeowners. New version posted 3-18-2010