Does Fracking Really Affect Property Value?

Properties over a mile from fracking wells have reported reductions in value.

Properties over a mile from fracking wells have reported reductions in value.

In 2011, IHS Global Insight predicted fracking -- the process of pumping water and chemicals underground at extremely high pressure to force out shale gas -- would account for 43 percent of all gas production by 2015. This may be good news for the gas industry, but residents living on the front line paint a less positive picture. Among other problems, fracking has been linked to reduced property values in communities across the United States.

What the Research Says

In 2012, the National Bureau of Economic Research did a study about fracking sites that reviewed more than 19,000 properties sold in Washington County, Pennsylvania. It concluded those close to fracking sites suffered "a large and significant reduction in property values." In some cases, values dropped by 26 percent. The Catskill Mountainkeeper puts the figure much higher, reporting that real estate appraisers in Texas have discounted valuations by as much as 75 percent if a property has a gas well. The problem is extensive. NBER's report had price reductions up to 2,000 meters -- more than a mile --- from the well site.

Perception is Everything

The biggest problem, according to the NBER, are perceptions about the groundwater risks associated with drilling. Fracking uses enormous amounts of water. The process extracts gallons of water from underground aquifers, mixes it with chemicals, and pumps it back into the ground at high pressure to force out the gas. In arid areas such as North Dakota, many communities have no water supply other than the local groundwater reserves. Concerns about the aquifer running dry and groundwater contamination cause property values to plummet. By contrast, the NBER reports that properties receiving water from a public water supply increased in value by more than 10 percent.

Resell Fail

Beyond the immediate problem of selling a home that has dropped substantially in value, fracking can block a homeowner's attempt to refinance. Banks are becoming cautious about mortgaging land near a fracking site. The Federal Housing Administration, for example, will not lend to any homeowner if surface or subsurface gas rights fall within 300 feet of the property's boundary. This could have a devastating effect on communities unable to sell or refinance their homes. In 2012, the NBER predicted "an increase in the likelihood of foreclosure" in such areas.

The Good News

In June 2013, Mortgage Solutions reported that landlords near the fracking wells in North Dakota predicted high rental returns of 13 to 15 percent. They typically rent homes to the fracking corporations, and they tend to go to workers near the site. With 35,000 to 45,000 new wells predicted to be drilled in the region by 2035, that's good news for the budding investor.

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