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e e "'-'.:- . ROO-9 Warren Kriesel Ag and Applied Econ. U.ofGeorgia Athens, GA 30602 wkriesel@al!econ.ul!a.edu 706.542.0748 Coastal Erosion Impacts on the US Residential Property Market This research focuses on how the market for US coastal property is affected by shore erosion and flooding hazards, In 13 states that were selected by FEMA, coastal zone management personnel used aerial photographs and geological data to define the Erosion Hazard Area. The EHA is any strip of coastal land that could disappear in the next 60 years, given historical erosion rates and other data. Within these sites a team surveyed a random sample of properties and collected data on certain characteristics such as their flood elevation, distance from the shore, etc, Questionnaires were mailed to property owners in the study sites, and 3,600 questionnaires were returned for a response rate of 37 percent. To measure how coastal property prices are affected by erosion we used a standard tool from environmental economics called hedonic price analysis. It uses regression methods to measure how actual property prices are explained by property characteristics such as parcel size, number of bedrooms, etc., as well as coastal hazards, Economic theory says that prospective homebuyers gather information and become aware of the risks of owning coastal property. This means that for two identical neighboring properties, the house that appears less risky should sell for more. This was exactly what was found. Protection from flooding was measured by the elevation of the house's first floor above the 100-year flood level. Protection from erosion damage was measured by geological time, calculated as the number of years until erosion reduces the distance between the building and the water's edge to zero. Both of these coastal risk measures were statistically significant determinants of property prices, along with I I more of the 20 property characteristics included in the hedonic regression model. Price discounting for geological time is noticeable when a house is visibly endangered. A property that has 60 years of geological time is worth 5.8 percent more than a comparable house with 30 years of geological time, and it is worth 38 percent more than a house with one year remaining. Surprisingly, the availability of federal flood insurance was an insignificant factor in determining property prices. The data set was divided according to whether a property was in a coastal community that supported beach-related tourism and recreation or whether it was in an ordinary coastal community. The average property's price in an ordinary coastal community was only 80 percent of a comparable property located in a recreational beach community. This is because recreational beaches are more attractive to visitors and new residents and they bid up prices for waterfront lots and for the lots farther inland as well. These results illustrate what a community might lose when its beach becomes less attractive to new "-resldents and visitors. In particular, if the beach degradation is associated with protective coastal armoring, then the results suggest that waterfront property owners are gaining this protection at the expense of their inland neighbors' property value, This represents a serious negative externality, Beach nourishment seems to effectively preserve beach conditions in some areas like Miami Beach, but in most areas the new sand is eroded away quickly. For a longer-term solution, coastal communities could exercise eminent domain and remove endangered buildings before the beach is damaged. Property owners could be compensated by several methods for financing public projects, including industrial revenue bonds,