Endogenous, Regime-Switching Hedonic Estimation of Commercial Waterway Water Quality Impact on Home Values in the Alabama Black Belt

Abstract

We are the first researchers to investigate the impact of the water quality of a commercial marine waterway on the housing market. We use housing data for properties in proximity to the major waterways and minor tributaries of the Gulf Intracoastal Waterway in the Alabama Black Belt. Research shows a positive relationship between water quality and the value of waterfront properties. We use waterway impairment as a proxy to measure water quality to conduct a counterfactual analysis based on a unique endogenous regime-switching hedonic price model. We find significant empirical evidence that properties in proximity to the Black Belt’s major waterways could depreciate by approximately 22% compared to the counterfactual case of properties located on or near minor tributaries. A possible implication might be that homeowners prefer properties on or near minor tributaries of the Alabama Black Belt because of perceptions that the water quality is better than on major commercial waterways.