Spatial Heterogeneity in Hedonic Price Effects for Lake Water Quality

This study uses Zillow’s ZTRAX property transaction database to investigate variation in hedonic price effects for lake water quality throughout the United States. We consider different market boundary definitions at five spatial scales and estimate models using different combinations of sample selection criteria and model specifications. Our results indicate considerable spatial heterogeneity both within and across political regions and ecoregions. Elasticity estimates are sensitive to market boundary definition in all regions except the Midwest. Regional medians are stable across different specifications in the Northeast and Midwest and unstable in the South and the West.

Impact/Purpose

Lakes provide a wide range of benefits to local communities, and improved water quality has been shown to be positively associated with house sales prices throughout the United States. However, there is significant variability in lake characteristics and corresponding housing markets that cause heterogeneous responses of lake water quality on housing market outcomes. In this study, we exploit the broad spatial coverage of Zillow’s ZTRAX property transaction database with national lake water quality measurements to evaluate how elasticity estimates vary across multiple market boundary definitions related to political and ecological neighborhood features. By estimating hedonic models at different spatial scales with multiple sample selection criteria, we consider the widest set of lakes and surrounding properties and present the largest set of elasticity estimates for water quality available in the literature. The estimates can be used in future meta-analyses to better understand ecological, geopolitical, and methodological factors that impact hedonic price effects. Overall, the results presented in this study underlie the importance of ecological and demographic considerations when evaluating capitalized benefits of water quality in lake housing markets and provide insight into the appropriate spatial extent of hedonic models for water quality. We find indicate considerable spatial heterogeneity in the effects of lake water clarity both within and between geopolitical regions and ecoregions, demonstrating a single nationwide estimate is not appropriate to model potential benefits at a national scale. We further find regional variation in the sensitivity of hedonic price effects to different market boundary definitions, sample selection criteria, and modeling decisions, with elasticity estimates from lake-dense states in the Northeast and Upper Midwest more stable than those in the South or West.  We highlight the effects of market boundaries are not trivial, and researchers should test the robustness of hedonic estimates across multiple definitions. Given instability of hedonic models throughout the South and the West, it may not be appropriate to define hedonic models at a national scale. More research is required to better understand the effects of lake water quality in these ecologically distinct areas.

Citation

Swedberg, K., D. Cardoso, A. Castillo, S. Mamun, K. Boyle, C. Nolte, M. Papenfus, AND S. Polasky. Spatial Heterogeneity in Hedonic Price Effects for Lake Water Quality. University of Wisconsin Press, Madison, WI, 100(1):89-108, (2024). [DOI: 10.3368/le.100.1.102122-0086R]

DOI: Spatial Heterogeneity in Hedonic Price Effects for Lake Water Quality