Declining Marginal Value of Coastal Proximity

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Declining Marginal Value of Coastal Proximity

• Kenneth Wehrmann

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How is Coastal Property Valued?

• How much extra would you pay for a house on the
  beach?
• How much less for a house that was on the second
  row of houses?
• Third?....

MAP of Beach
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Research

• Previous Hedonic Studies
• Rosen
• Beginning of Hedonic Method
• Islands
• Power Plants, Toxic Sites, Pollution
• Negative externalities affecting nearby
  properties
• Flood Risk
• How consumers discount property due to risk
• View
• Do consumers consider view when making purchasing
  decisions? (Coastal)

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Theory

• Coastal homes are highly valued for their close
  proximity to a scarce resource, our beautiful
  North Carolina shores. Coastal proximity
  provides utility to consumers and will therefore
  demand a premium. This premium will decline as
  distance to the shore increases and should show
  signs of diminishing returns.

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Theory Graphs
PD
P
Price Differential
? Distance to Shore
Q
Distance to Shore
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Data Source

• Bin, Okmyung., Tom Crawford, Jamie Kruse, and
  Craig E. Landry. "Flood Prone with a View
  Coastal Housing Market Response to Risk and
  Aminity." Working Paper. East Carolina
  University. 2006

• New Hanover County, NC
• 1075 Property Sales from 1995 to 2002
• 30,000 to 3,500,000 sales price
• 12 were new homes

Map of Beaches
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Hedonic Model

• Goods are broken down into their constituent
  attributes. These attributes create utility for
  consumers and therefore hold value. This value
  can be estimated by quantifying these constituent
  parts and analyzing their relationships. For the
  housing industry characteristics are
  traditionally broken down into three groups
  structural, neighborhood, and environmental
  attributes.

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VariablesStructural

• Age
• 0 81 22.06
• New Home (D)
• 12
• Square Footage
• 392 8354 1784.08
• Lot Size
• of Bedrooms
• 1 8 3.15
• of Bathrooms
• 1 7.5 2.491
• Air Conditioning (D)
• 90
• View (Sum of Degrees of View)
• 0 178.18 18.36

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VariablesNeighborhood

• Neighborhood (D)
• Figure 8 Island 10
• Kure Beach 34
• Wrightsville Beach 17
• Carolina Beach 40
• Distance to Nearest Highway
• Distance to Central Business District

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VariablesEnviormental
Distance to Nearest Shore Range 73 Ft to 1
mile Average 1743 ft or 3/10ths of a
mile Distance to Neatest Shore Squared
(Diminishing Returns)
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Results

• Model 1
• T-stat -4.4
• Consumers do pay a premium for properties with
  close proximity to the shore
• Model 2
• Dist -13.69
• Dist Sq 12.83
• These premiums show evidence of diminishing
  returns as each foot of distance away from the
  shore supplies marginally less utility to
  consumers

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Model 3
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Future Research

• Mountains
• View Variable
• Distance to CBD (Boone)
• Value of being in a gated community

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Questions?