Groundwater Contamination and Property Values: A Hedonic Price Analysis

Abstract

About 15% of the United States population (~43 million people) rely on private wells for their source of drinking water. This water is not regulated by the Environmental Protection Agency, and as a result, the water in these wells can contain harmful contaminants (e.g., arsenic, nitrates, and nitrites) that go undetected by homeowners unless otherwise tested. Using a dataset of housing transactions (n=3,908) in the Orlando, Florida Metropolitan Statistical Area, I examine the impact of testing well water on the property value at time of sale. In Florida, not all homes with wells are tested before sale. I address the possibility of selection bias by using a subsample of homes from this dataset (n=1,566) that had all tested their well water before being sold. Using a hedonic pricing model, I test the impact of a well water test finding a contaminant above the detectable limit on sales price, controlling for housing characteristics, geospatial characteristics, and the date of sale. My results indicate a 10% decrease in property value when a well test revealed a contaminant to be above the detectable limit, relative to properties with well tests that did not reveal any contaminant above the detectable limit. The most robust, significant effects are found when homes were tested within a 3-year window prior to transaction. This has implications for the public health and financial stability of homeowners using private well water.