SANTA ANA, CA - CoreLogic, a leading provider of information, analytics and business services, reported today that the impact of the BP DeepWater Horizon oil spill on home values in the coastal counties along the Gulf coast communities is expected to range from $648 million over one year and to as much as $3 billion over five years for the communities already being impacted by the spill. If the unlikely worst-case scenario occurs and the spill reaches around the Florida Keys and up the Atlantic coast of Florida impacting beach amenities, the additional losses could reach up to $28 billion over five years.
In the coastal counties of Harrison, Mobile, and Escambia, there are more than 71,000 homes that will potentially be impacted. In addition, there are 15 major counties stretching from the Gulf coast of Mississippi to the Atlantic coast of Florida with more than 600,000 residential properties within 1,000 meters of the coastline.
The CoreLogic analysis relies on established methods for estimating environmental amenity values in general that take into account the annualized economic value of beach access in these coastal communities at risk of being damaged by oil coming ashore and beaches being closed to human recreational use for a period of five years. Buyers of homes in these coastal communities paid premiums when they purchased their homes for access to the beaches and the amenity benefits that they represent.
Specifically, CoreLogic used its public record and parcel data collected in the 15 at-risk counties and combined this with its proprietary geospatial coastline data that accurately identifies the geographic location of the shore. Based on a geospatial query of the public record data using the coastline file, more than 600,000 properties were identified as being within 1,000 meters of the coastline in 15 counties, representing major beach communities stretching from the Gulf coast of Alabama to the Atlantic coast of Florida. The approach, used in this analysis, to the valuation of environmental amenities was developed in the late 1970's and early 1980's and is a well-accepted technique for measuring the value that consumers place on a variety of different environmental and residential amenities. In this application, CoreLogic used hedonic price theory to estimate the perpetuity value consumers place on access to beach amenities as a function of distance (in meters) to the beach. The perpetuity value was then converted into an annual annuity value of beach access using the present value discounting approach for an annuity that pays into perpetuity. In this study, the duration was assumed to be five years, but the methodology estimated an annualized economic value, therefore, the five-year estimate is merely five times the annualized economic value of a single year. For example, the single-year loss estimate for the Gulf coast communities is $648 million. In addition to the loss estimates of the economic value of beach access, the already fragile housing markets in many of these communities are likely to experience further distress due to the potential impacts of the oil spill on local economies.
The loss in amenity value is measured as the annuity value of the perpetuity value of access to the beach, measured in distance, for five years because of the environmental impact of the oil spill.
The loss in amenity value increases for properties closer to the beach. Figure 1 shows the loss in amenity value as a function of distance, measured in meters to the beachfront. Beachfront homes could incur a loss of amenity valued as high as $80,000.
The highest risk coastal communities along the Mississippi, Alabama, and Florida panhandle include more than 71,000 residential homes at risk of losing an estimated average loss in beach amenities valued between $40,000 and $56,000. The total estimated loss of beach amenities is valued at $3 billion.
Of the immediately impacted communities, the largest overall loss in amenity value would be in Pensacola ($1.6 billion), followed by Gulfport ($1.2 billion).
In terms of average loss in amenity value per home, Gulfport ($56,000) is the largest, followed by Mobile ($45,000) and Pensacola ($40,000).
If the Gulf currents take the oil to the communities along the Florida gulf coast the loss in amenity value will rise substantially. The four coastal communities along the coast (Panama City, Tampa Bay, Cape Coral, Naples) could experience a total loss in amenity value of $11 billion impacting 238,000 homes.
Even though the chances are low, CoreLogic estimated the loss in amenity value for communities along the Atlantic coast of Florida as well. This includes Miami, Key West, Palm Bay, Daytona Beach, and Jacksonville. More than 295,000 properties within 1,000 meters of the beach could be affected with a total loss in amenity value of $13.5 billion.
"Using well established economic techniques for the measurement of the economic value of environmental amenities an estimate of the loss in beach amenity value is substantial. While it is by no means a certainty that the major coastal communities along both coasts of Florida will be impacted at all by the oil spill, the lost amenity value in these markets could be particularly high," said Mark Fleming, chief economist with CoreLogic. "The total loss in amenity value in communities already being impacted by the oil spill to date is potentially as high as $3 billion over five years. Our hope is that the oil spill is contained and the loss in amenity value is further moderated by a speedy cleanup and a return of beach amenities to the affected communities' homeowners."