Are Some Natural Amenities as Good as Gold? Evidence from Coastal Real Estate and Marshlands

Abstract

Hedonic property price models are commonly used to assess the value of environmental amenities for housing buyers. The underlying theory presumes equilibrium in the housing market. Housing markets, however, are prone to cyclical and shock dynamics, as evidenced by the recent Great Recession. Building on recent research, we explore capitalization of natural amenities in residential housing markets that are experiencing a significant economic downturn. There are a number of possible economic changes arising from housing market dynamics, providing basis for an empirical exploration. During economic distress, people often shift their portfolios toward safe investments, providing potential for housing market segmentation and amenity-value appreciation. Using a battery of regression models, we find evidence in support of these hypotheses with regard to proximity to saltwater marshlands around Savannah, Georgia. In doing so, we provide guidance on how to analyze hedonic property prices in the presence of market disequilibrium.