The Effect of Ambient Water Quality on Lakefront Property Values: Evidence from Coeur d'Alene, Idaho

Abstract:

Climate warming is causing water temperatures to increase and subsequent changes in water quality. To develop innovative approaches for mitigating the possible negative social consequences of such changes, more research efforts are needed to investigate how people perceive and respond to ambient water quality. This research examines the amenity value of water quality in the areas centered on Lake Coeur d'Alene of Northern Idaho. Through a hedonic analysis, we find that two important water-quality variables have had significant effects on lakefront property values, including Secchi disc reading, a technical measure of water clarity, and the presence of Eurasian watermilfoil, an aquatic invasive species. We further explore the spatial heterogeneity of water-quality benefits along the urban-rural gradient and find that access to urban amenities has strengthened the water-quality benefits in the lakefront housing market. Our findings could be used to incentivize private property owners and stakeholders to commit time and funding to cope with the potential degradation of water quality under climate change.