Fracking May Drive Down Real Estate Values, Survey Finds

Released: 10-Sep-2013 2:00 PM EDT
Source Newsroom: Dick Jones Communications
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Citations Journal of Real Estate Literature

Newswise — Fracking for natural gas may negatively impact the value of homes near the drill site, according to a survey to be reported in a forthcoming issue of The Journal of Real Estate Literature.

“Our surveys show a five-to-15 percent reduction in bid value for homes located proximate to fracking scenarios,” reports Ron Throupe, a professor in the Daniels College of Business at the University of Denver.

Throupe and a University of Denver colleague, Xue Mao, along with Robert A. Simons of Cleveland State University, arranged for telephone surveys of more than 550 homeowners in the Houston, TX metro area and the Alabama-Florida panhandle. They were instructed to imagine that they were going to consider bidding on a house.

Most respondents were given a scenario about a house very similar to their own home in a neighborhood just like theirs. They were told that an energy company had bought the rights to inject a pressurized mixture of water, sand and chemicals into a lower groundwater aquifer to recover natural gas under the property they were considering buying. The drilling equipment was over a quarter mile away and visible from the house. The house is on well water from a shallow aquifer, separate from the lower aquifer the natural gas is being recovered from. The process, they were told, was expected to go on for five years.

Among the Texas homeowners, 26 percent said they would bid on the house. Among the Florida-Alabama homeowners, 36 percent said they would bid. The top quarter of the bids submitted by the Texans who would bid came in at around a six percent discount below the value of their own homes. The top quarter of the bids by the Florida-Alabama homeowners had a steeper discount—about 15 percent.

The term “fracking” can influence public opinion, the researchers suggest. In Texas, perceived as “petroleum friendly,” the projected price discounts on houses near fracking operations were generally in single digits. Among the Alabama-Florida homeowners, however, perceived to be less familiar with fracking, the price discounts were generally in double digits.

The future of real estate values in areas where fracking occurs likely will be influenced by how comfortable homeowners become with the industry.

“There is a need to share best or improved practices in connection with fracking operations,” the authors write. “These include site development or shrinkage, post reclamation, reuse and disposal practices for frack fluid, cutting the emissions from drilling operations, and the public review process.”

“There is an emerging focus on reducing the environmental impact of exploration for oil and gas. The questions to be researched include the long-term implications of chemicals left underground, the air quality implications, the storage solution to flow-back materials such as toxic fracking fluids and radioactive materials, and safety concerns near populations.”

The study is titled “A Review of Hydro-Fracking and its Potential Impacts on Real Estate.”

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