Bloom and Bust

Algal blooms hit the housing market.

Published September 6, 2017

In the real estate business, it’s all about location, location, location. Except when it’s about water quality. And as a new study shows, large algal outbreaks are a great way to dampen the value of waterfront property.

In the study, which looked at houses along Narragansett Bay, an estuary opening to the Atlantic Ocean on the Rhode Island coast, researchers tracked how housing prices rose and fell over 21 years in conjunction with changes in the bay’s water quality.

Tingting Liu, a data analyst with the US Environmental Protection Agency who led the study, found that extreme algal blooms—events that bring unpleasant odors, water discoloration, and fish kills—have the biggest effect on housing prices.

Spread over an area of 380 square kilometers, Narragansett Bay is the largest estuary in New England. With the second highest population density in the United States, and ongoing urbanization, Rhode Island has struggled to keep the bay clean. More than 100 cities across Rhode Island and Massachusetts are in the bay’s watershed, and much of the bay’s pollution comes from urban runoff and sewage treatment facilities.

To study the connection, Liu and her colleagues gathered data on more than 40,400 housing transactions from 1992 to 2013, and compared them with measurements of water quality recorded by buoy monitors located throughout the bay.

When pollutants such as nitrogen run into the water, they cause increases in plant growth, which can lead to algal blooms. In 2003, for example, runoff from a storm flooded the bay with excess fertilizer and other wastes, causing an algal bloom that turned the bay pea green and depleted oxygen levels in the water—resulting in the death of roughly a million fish.

Through their calculations, the researchers found that when water quality is high, houses on lots within 100 meters of the shoreline are worth 0.1 percent more than when water quality is low. Houses farther back—from 100 to 1,500 meters from the shoreline—see a smaller increase in value, just 0.08 percent.

Though such an increase is small for each individual homeowner, the researchers estimate that throughout the bay region, high water quality results in a US $18-million to $136-million boost in property values. On the flip side, if water quality tanks, so too do house prices.

“For most people, their homes are their largest financial assets, and knowledge of this relationship can motivate them to support zoning and state regulations to protect water quality,” says Kevin Boyle, a professor at Virginia Tech who has conducted similar economic studies of water quality.

“The challenge is that nutrient loading can come from distant locations in a watershed where there is no direct link to property values,” says Boyle. In some cases, he adds, “there is no inherent motivation to protect water quality when the polluting entities do not experience the economic consequences.” In such situations, regulations are needed to promote water conscious behaviors.

After the 2003 storm, Rhode Island enacted a law requiring wastewater treatment facilities to reduce the nitrogen they release into the water, which has since improved the health of the bay. However, as climate change causes water temperatures to increase and the sea level to rise, algal blooms are likely to become more common. Lawmakers and local residents will have to work together to maintain a coastal environment that is desirable to land dwellers and safe for marine life.