Wildfire Impacts on the Value of Safe Drinking Water: Evidence from Housing in Oregon’s Willamette Basin
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Climate change and other factors have led to a significant recent increase in the frequency and severity of wildfires in the Western U.S., posing substantial threats to human well-being, health, and the provision of ecosystem services. While the potential economic impacts of wildfires are extensive, the impacts of these fires on nonmarket watershed ecosystem services are an understudied component. Natural science literature indicates that wildfires may affect water supplies by amplifying problems related to soil erosion, flooding, sedimentation, and nutrient concentrations. These issues could lead to drinking water service disruptions or costly new expenditures in water treatment facilities in affected communities. Despite these challenges, it is unclear whether housing market participants are likely to respond to wildfire risks through the lens of its impact on drinking water quality. This study attempts to identify and disentangle the potential effects of wildfire on drinking water by leveraging the occurrence of large and unexpected wildfires in upstream watershed areas in Oregon’s Willamette Basin. The western slopes of the Cascades mountain range did not have prior history of large wildfire events and the Labor Day windstorm in September 2020 resulted in five (5) megafires over 100,000 acres in size burning immediately and simultaneously. Many public water service areas saw significant portions of their source water watersheds burn severely (e.g. Eugene, Salem), while others were not impacted by this fire event (e.g., Portland). We compile comprehensive data on over 330,000 housing transactions, wildfire locations, and water quality from 2013 to 2023 across 11 counties in Oregon and Washington. By leveraging temporal and spatial variation in residential land transaction data, wildfire locations, and public water system service areas, our difference-in-difference approach estimates the average treatment effect of the upstream Labor Day 2020 wildfires on downstream residential housing markets. We take care to avoid estimating the direct effects of fire (proximity, view of burn scars) by removing areas near fire boundaries and control for water quality in surface water (e.g., turbidity, dissolved oxygen) associated with recreation services, in addition to our research design to identify the wildfire impact on drinking water. Our preliminary results suggest that wildfires have a short-lived negative impact on housing prices (-1.5% to -3%) in treated communities after the Labor Day fires through their effect on drinking water quality, with these impacts lasting for about 2 years before returning to baseline trends. Our findings are robust to alternative treatment definitions and fire event time windows. On-going analyses will determine if treated communities with multiple and varied water sources were more resilient to this fire event. Our results thus far suggest that individuals in the Western U.S. may be starting to recognize risks to drinking water supplies from wildfire as observed through housing values, but similar to other hazard events, the change in risk perceptions on purchasing behavior (if any) is likely short-lived.