Fracking Lowers Home Values by $30 K says Duke Study

A study published just this month in the American Economic Review shows that fracking can cause steep drops in home values in some neighborhoods. The study examined home sales in 36 Pennsylvania counties between 1995 and 2012. The analysis controlled for potentially confounding variables such as effects of the Great Recession and the benefits homeowners may receive in the form of lease payments.

Researchers found that home prices dropped by an average of $30,1676 when shale drilling occurred within a distance of 1.5 kilometers (almost one mile). That’s for homes that depend on groundwater. Homes that had water piped from a municipal source actually gained an average of $4,800.  

But, write the authors of the study, “it is important to keep in mind that our estimates do not fully capture the total costs associated with groundwater contamination risk. Owners of groundwater-dependent homes may purchase expensive water filters to clean their drinking water when faced with a shale gas well nearby [and] whole home filters can cost thousands of dollars.”

The paper is among the first to quantify the impact of fracking on property values in a wide geographic area, Christopher Timmins told the press. He’s one of the co-authors of the study and specialized in environmental economics at Duke University.

“Our results show clearly that housing markets are responding to homeowners’ concerns about groundwater contamination from shale gas development,” Timmins said. “We may not know for many years whether these concerns are valid or not. However, they are creating a real cost to property owners today.”

One thing the authors found is that the distance between a shale well and a home matters greatly for home prices. Among homes that rely on well water, a shale well located within one kilometer (0.6 mile) was associated with a 13.9 percent average decrease in home values. But if the nearest shale gas drilling site was at least two kilometers away (1.2 miles), property values remained constant.

It was in neighborhoods with a piped water supply where they found that home values rose slightly – perhaps due to royalty payments. Even so, home values rose only when shale wells were out of view.

What does this mean for homeowners?  Right now more than 15 million Americans live within a mile of the hundreds of thousands of fracked gas and oil wells that have been drilled since 2000.

A 2013 survey conducted by business researchers at the University of Denver showed a strong majority would not buy a home near a drilling site. The study, published in the Journal of Real Estate Literature, also showed that people bidding on homes near fracking locations reduced their offers by up to 25 percent

Homeowners near drilling sites often have to move because of industrial activity. One homeowner found the fumes, lights, and noise unbearable. Forced to move, they were only able to sell their Cleveland suburban home for half its appraised value.

And a Texas family found their 10-acre ranchette plunge in value from $257,000 to $75,000—a decrease of more than 70 percent – just one year after the first drilling rig went up on the property.

With all of this evidence that no one wants to live near a fracking well, why on earth would towns embrace  fracking?

Gas Leases & Legal Issues for Landowners

It was standing room only (or close to it) in the James Law Auditorium at Cornell's Vet School last Thursday (Oct 29) when more than 200 people showed up for a forum on "Legal Issues for Landowners. The forum was co-sponsored by Shaleshock Citizen Action Coalition, Cornell Cooperative Extension, and a host of others including local Assemblywoman Barbara Lifton.

Four attorneys addressed issues of gas leases, property law, pipeline easements, compulsory integration, and landowner coalitions. One of the things that still seems to stymie landowners is that when they sign a lease with a gas company they could be creating a "title defect".

"The severity of the defect depends on what you ultimately want to do with your land," said attorney Randy Marcus. A typical gas lease goes far beyond allowing the gas company to drill; they can build access roads to their well pad, take trees (timber), erect fences, put up buildings, and construct pipelines if you don't negotiate limits to these rights, Marcus said. He pointed out that most banks won't put a mortgage on a property with a lease. If a family purchases country acreage for their dream home, and the previous owner had leased the mineral and surface rights to a gas company, the home-in-the-country dream may not get financed.

Another issue Marcus raised is homeowner liability and insurance. "Accidents happen," he said, and noted that a number of insurance companies will not insure properties with a lease. Others have substantially increased their premiums.

While DEC's new draft rules for drilling the Marcellus (dSGEIS) takes up a lot of pages (809) it does "virtually nothing to protect the value of your property," said Marcus. Right now the gas companies can drill a well as close as 100 feet from your home. "That's five pick-up trucks parked end-to-end," Marcus said. "Not what the average homeowner expects in their backyard."

Attorney Jane Welsh agreed with Marcus. Later in the evening she said that DEC "doesn't really have protection at heart" of their dSGEIS. She feels the environment is getting the short end of the stick and urged landowners to submit comments on the dSGEIS. She also emphasized the importance of conducting baseline water testing, in case well water becomes contaminated through drilling or spills.

Attorney Helen Slottje addressed the issue of pipeline right-of-ways. The message of the night: there will be a lot of them, and nobody is coordinating where they go. Without some sort of oversight the pipeline right-of-ways will slice through forest and farmland. clarification: the discussion was in reference to gathering pipelines that go from wells to compressor stations and the large pipelines, such as Millennium, that transport gas to market.

Slottje also raised the question: what would happen if landowners got together to create a coalition of folks who refuse to lease their land? To form a drilling unit a gas company must have 60% of the land under lease - they can incorporate any hold-outs through "compulsory integration" - more on that tomorrow.

But, said Slottje, what if landowners joined in solidarity to keep acreage unleased? If they got enough acres they could effectively stop the drilling in their area.

Gas Leases & Real Estate

My neighbor down the road is a farmer. Like most of the farmers I know she is down-to-earth, can fix just about anything, and practical. During a discussion the other day about landowner's rights to lease, she raised two good points: that a landowner could be held liable for damages that might occur to a neighbor's water should contamination from drilling occur, and the difficulty of selling leased property.

Last spring I interviewed a few realtors in gas-drilling areas, asking them if they'd experienced any trouble selling properties. Dave Knudsen, a Sullivan County realtor with the Catskill Buyer Agency, said that during the summer of 2008 he fielded two calls a week from investors looking for "100 to 200 leaseable acres".

"They were asking for land near the pipeline," Dave said. But his other clients, downstaters looking for a quiet country home, had other priorities. Their first question was: are the neighbors leased? If so, they didn't want to look at the land.

Dave isn't the only one. A Finger Lakes area realtor said she had more than the usual trouble matching prospective home-buyers with their country dream house. One 32-acre parcel near Ithaca was rejected twice because of the lease. The second buyer even had a house package worked up for the land, but the bank denied him a loan because of an existing gas lease on the property. The ultimate buyer figured he could build a house before the gas company moved in to drill a well.

To read the complete article go to http://www.tiogagaslease.org/images/BVW_03_20_09.pdf