Facility Siting Affects Housing Prices

University Park, Pa. - Incinerators and other facilities that are perceived as undesirable in residential areas have lasting effects on nearby housing prices and appreciation rates, according to a recent study.

Researchers at Penn State and Northeastern University found that home buyers in a community near Boston paid an average $8,100 more per mile to live farther from a newly constructed incinerator.

"Even after the incinerator had been in operation for four years, buyers paid an average of more than $6,600 more per mile to be away from it," said Dr. Katherine T. McClain, assistant professor of mineral economics at Penn State's College of Earth and Mineral Sciences. "Housing appreciation rates in the town also fell during the construction and operation of the incinerator, but individual house rates improved with distance from it."

McClain and Dr. Katherine A. Kiel, assistant professor of economics at Northeastern University, used a dataset of 2,593 house sales to conduct the study. The sales took place from 1974 to 1992 in North Andover, Mass., where an incinerator was built in 1985 to replace the town's landfill which was nearing capacity.

The researchers divided the siting, construction and operation of the incinerator into stages, each determined by the level of risk as perceived by neighbors. The categories included rumor, construction, on-line and ongoing operations stages.

By the time construction began, the houses farther from the site already had higher premiums than any found in similar studies of Superfund sites. Within three-quarters of a mile from the plant, demand had dropped and house prices fell below predicted levels. Demand increased for houses more than three-quarters of a mile away; prices moved above pre-incinerator values. The shift was most pronounced during the on-line stage.

Public policies may have to change to reflect compensation for the homeowners' costs of hosting these facilities, said McClain.