If This Is Destruction, Can I Have Some Please?
One of the prevailing myths about natural gas development is that it will somehow destroy property values, making it impossible for homeowners to sell. Not surprisingly, the folks making this argument never offer anything more than speculation about how land and home values are sure to decline. Curiously, they make this argument while simultaneously suggesting the natural gas boom is creating housing shortages, as if shortages would produce anything other than increased prices. So much for how well they listened during Econ 101! Fortunately, real data on real estate markets in the Marcellus Shale region exists — and the facts once again contradict the naysayers’ fears.
Many of you know I have a planning and research consulting practice, in addition to my role here at EID Marcellus. Among my clients are various public and private entities who require analysis of real estate development trends throughout New York and Pennsylvania. Recently, we did some studies of land values in both states for purposes of determining how much agricultural and forest properties were worth. What we found for areas affected by natural gas development was rather astounding. We learned, based on eight comparable sales over the last year (some 336 acres in land in total), that farmland values in Bradford County, Pennsylvania averaged $6,984 per acre for properties of 10 acres or more. Fourteen sales in Susquehanna County (1,182 acres) averaged $4,993 per acre. Sullivan and Wyoming County properties averaged $5,579 and $7,215 per acre, respectively. Lycoming County saw an average value of $4,547. Not bad, right?
Now, compare this to similarly rural Wayne County, which is still waiting on the DRBC to allow gas exploration, where the average was $2,921 per acre; or Pike County, where it was $3,168 per acre, despite both counties being much closer the New York City, that factor having traditionally driven property values in those areas. Indeed, it made Pike among the fastest growing counties in the nation in recent years and property values had risen steadily there as a result. Lackawanna County (e.g., Clarks Summit, North Pocono areas), despite being a much more urban area, likewise only produced an average value of $3,889 per acre. The divergence in values is pretty startling, to say the least.
We can also compare these values to some recent numbers for New York State where we found agricultural properties in counties generally adjoining Bradford and Susquehanna Counties (Broome, Chemung, Steuben and Tioga Counties) sold for prices of $1,200 to $2,400 and typically well below $2,000 per acre. Because New York is a high tax state across the board, there is always a discounted value compared to properties in lower tax Pennsylvania, but we are talking a 3:1 ratio here, which is hardly explainable by taxes alone. Do you think it might just have something to do with natural gas?
A review of sales patterns over the last several years provides a clue. We did similar studies last year to update reports done by other consultants. We found the average value for Bradford and Susquehanna County was only $4,113 per acre then, and the year before another consultant suggested the figure was $3,278 per acre. That sure looks like a pattern to me, but don’t just take my word for it. Last week, I spoke at a Pennsylvania Board of Realtors convention on this subject and another panelist was William Them, a Bradford County realtor, who indicated much the same thing. Here is what he has to say:
Bill Them confirms an across the board increase in property values (both homes and land) since natural gas arrived. It has reduced the velocity of sales, opened up brand new rental markets and made previously unsellable properties worth listing. There are far more cash sales and properties with gas rights are selling for $7,500 to $10,000 per acre according to him. Overall, the market is up 25% in his judgment, despite an economic and real estate recession that has depressed prices elsewhere. Similar reports were heard from other panelists (Brent Fish of Fish Real Estate in Williamsport and Kim Skumanick of Lewith and Freeman Real Estate in Clarks Summit, which may be viewed below:
Our anti-gas opponents, of course, will say (have said) this is only a case of large landowners getting rich while everyone else suffers the destruction of their property values. Even the New York State SGEIS seems to make this case, albeit with several qualifications. It says (on page 6-250) “significant increases in property value are expected where the subsurface mineral rights and land are held jointly with land ownership and the exploitation of the subsurface resources is not limited in some way.” But, then, based on a review of conflicting literature, it goes on (see page 6-253) to make the following very ambiguous statement:
In conclusion, the above literature review suggests that being in proximity to a well could reduce the value of a property, but that proximity to a gas pipeline might not reduce the value of a property. The proposed natural gas development would have an overall regional effect of increasing property values due to the expected in-migration of construction and operations workers and the increased economic activity that would occur in the area. Likewise, properties that still included unexploited sub-surface mineral rights would increase in value due to the potential of receiving royalty payments. However, not all properties in the region would increase in value, as residential properties located in close proximity to the new gas wells would likely see some downward pressure on price. This downward pressure would be particularly acute for residential properties that do not own the subsurface mineral rights.
Putting aside the obvious speculation involved in this conclusion, is it correct? Well, the data we analyzed certainly confirmed the general increase in property values, especially as it applies to larger parcels. Nevertheless, it most definitely does not support the idea that home prices fall near wells. As an example, there were 10 single-family home sales in Dimock Township, Susquehanna County (you may have heard of it) over the last 12 months. Sales information was available for six of these and they sold for an average price of $79.47 per square foot, though some were rated in poor condition. The average lot size was 1.87 acres. The newest was built in 2000 and one was over 90 years old. Sales histories were available for three units previously sold in the years 2001 and 2006 and none suffered any decline in value. The average gain in value was 34%. It doesn’t look like property value destruction to me. But, if it is, can I have some please?