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The impact of environmental hazards on home values

Posted on Monday, February 20, 2017 at 4:03:05 PM

Environmental hazards have a tangible impact on home values in many areas. However, this impact isn't as clear cut as it may seem. 

What are environmental hazards?
"Environmental hazards" is a broad term, referring to a variety of different substances and events that pose a threat to a natural environment or a person's health. The CDC traces several distinct environmental hazards that occur both naturally and due to human negligence in the U.S., including air pollution, radiation, or extreme weather.

Some of the major hazards that threaten residential homes include brownfields - property contaminated by a hazardous substance - polluters, poor air quality. While the majority of homes exist in areas that would be considered "safe" by surveyors and regulators, recent data from ATTOM Data Solutions suggests that roughly 17.3 million single-family homes and condos currently stand in zip codes facing a high risk of environmental hazards - with an overall value of almost $5 trillion. 

Environmental hazards and home value
Whether homeowners in these areas purchased their homes knowing about the possible hazards - or even if these were hazardous areas at the time of purchase - the classification has a distinct impact on home values. In general, experts at Attom point to the fact that home values in areas most at risk for environmental hazards are disproportionately lower than those in low risk areas

"Home values are higher and long-term home price appreciation is stronger in zip codes without a high risk for any of the four environmental hazards analyzed," Daren Blomquist, senior vice president at ATTOM Data Solutions, told RISMedia. "Corresponding to that is a higher share of homes still seriously underwater in the zip codes with a high risk of at least one environmental hazard, indicating those areas have not regained as much of the home value lost during the downturn."

It's unclear whether this is causation or correlation - i.e. whether these areas have lower value homes due to the environmental hazards or if it is merely on of several factors - but the way that hazard risk ties to value is stark: Median home prices in very high brownfield risk areas are 2.8 percent below where they were 10 years ago, while median home prices in very low brownfield risk areas are up 2.8 percent up. Home sales similarly are impacted by environmental risk, with low risk areas seeing significantly higher sales volumes than high risk equivalents. 

Investors not deterred 
In spite of this data, real estate with higher hazard rates may not be quite as toxic as they seem. The same report showed that real estate investors - those looking to purchase the homes but not necessarily live in them - have continued to buy real estate in high risk areas.

"Conversely, home price appreciation over the past five years was actually stronger in the higher-risk zip codes, which could reflect the strong influence of investors during this recent housing recovery," Blomquist said. "Environmental hazards likely impact owner-occupants more directly than investors, making the latter more willing to purchase in higher-risk areas. The higher share of cash sales we're seeing in high-risk zip codes for environmental hazards also suggests that this is the case."

This implies a certain optimism on the part of investors, both regarding the housing market and environmental challenges. As the economy continues to recover, these properties are likely to see increases in value as long as the hazards can be kept in check.

If you are considering purchasing a new home this year, or you are thinking about refinancing an existing loan, always reach out to your local bank to identify all the options available to you. With a more personal approach to shopping for the right residential financing program, you will have a better chance at choosing the right one.