Effects of Real Estate Cycles on Residential Amenity Values for Water Resources

Little research has been conducted on the effects of housing price cycles on preferences for environmental landscape attributes over time (Cho, Kim, & Roberts, 2011). If the economic value of scarce resources like water resource amenities depends on consumer preferences, then it is useful to address possible effects of cyclical variation in the housing market on these values. This issue is addressed in the primary research question for this thesis: Did the 2007-2009 recession and consequent real estate bust affect marginal willingness to pay for water resource amenities for properties in proximity to the lower St. Johns River (SJR) in Duval County, FL? Prior published studies on the most recent real estate cycle were used to evaluate the timing of housing market impacts during the most recent recession. Also, sales price and sales volume distributions for Duval County were evaluated to compare trends. Based on prior research and results, three separate hypotheses were generated and tested using the hedonic pricing method for residential properties in Duval County. The first hypothesis was that the recent recession impacted the implicit prices of water resource amenities for residential properties in proximity to the SJR. Two separate regression models were developed to test different recession periods (2007-2012 and 2008-2012) based on sample data. Time fixed effect binary variables were used to construct recession interaction effects with water related amenities (proximity to the SJR as well as tributary and riverfront properties). Results showed that during the recession period, sales prices for houses further away from the river experienced a greater negative impact than those closer to the river. This result is similar to research by Cohen, Coughlin, and Lopez (2012) who suggest that, higher priced or high tier residential houses (in this case, those closer to river) tend to hold their value more than low tier residential houses. Also, consistent with research by Bin, Czajkowski, Jingyuan, and Villarini (2015), sales prices for tributary and riverfront homes were not impacted by the recession. A second hypothesis was developed to test whether sales prices for houses in Duval County recovered to pre-recession levels. A regression model was constructed with a separate recession interaction effect variable for 2013-2015 and results indicated that the housing market did not make a full recovery from the recession. A final hypothesis was developed on the significance of interaction variables water quality indicator Chlorophyll-A and a recession effects binary variable. All water quality interaction variables introduced within the model were not significant at the 1% or 5% levels. Future research might include testing interactions with parcel land area and recession time effects and also examining other water quality indicators including Secchi Disk, dissolved oxygen, or turbidity. It may also be useful in the future to use an alternative method of measuring implicit prices of environmental characteristics, such as the repeat sales method