Abstract
Policymakers grappling with how to meet EPA water quality standards within the Chesapeake Bay must weigh the cost of water quality restoration against the benefits accrued to nearby homeowners. Missing from this analysis are the benefits homeowners receive from increased home liquidity – or how quickly a home is sold once listed. In this paper, we exploit variation in water clarity data to examine its relationship with prices and liquidity using real estate data (2008–2015) from the Baltimore region. We find a one-foot improvement in Secchi depth, needed to meet the total maximum daily load recommendation for the central and northern portion of the Chesapeake Bay, increases housing prices by $9600, decreases time on market by 19.7 days, and reduces seller holding costs by $1280. This cost-savings is welfare-enhancing for many home sellers, especially absentee homeowners who are likely to net an additional 13.3% in water quality benefits when liquidity changes are considered alongside property value increases. Not accounting for the additional benefits and losses accrued through home liquidity suggests water quality restoration projects and damages from impairment will be undervalued.
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