Early this month, CoreLogic, a provider of analytics and information for financial and governmental institutions, released a report detailing the impact of the BP Deepwater Horizon oil spill on the home values in the costal counties along the Gulf Coast. The affected areas, ranging from Mississippi to Alabama and the Florida panhandle, face substantial losses over the next five years, according to CoreLogic’s report.
Over the duration of the first year, Deepwater Horizon is expected to have an impact on the home values of the Gulf Coast’s coastal counties to range as much as $648 million. In five years, that amount could be as high as $3 billion. And, though unlikely, if the worst-case scenario comes true and the Gulf currants push the spill around the Keys and up along the Atlantic coastline of Florida, the additional losses could reach $28 billion over five years.
CoreLogic analysis uses established methods for estimating environmental amenity values in general that take into account the annualized economic value of beach access in these costal communities at risk of being damaged. This valuation of environmental amenities was developed in the late 1970s and early 1980s. The values are based on the probabilities and extent of oil coming ashore and beaches being closed to recreational use for up to five years. Homebuyers in these areas paid premiums for beach access and the amenities that represents.
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 due to the environmental impact of the spill. Beachfront homes could incur a loss of amenity value as high as $80,000.
The counties of Harrison, Mobile and Escambia are among the worst affected by the spill. These areas are home to more than 71,000 residential properties facing potential impact. These properties are among those at high-risk of estimated loss in beach amenities between $40,000 to $56,000. All communities together, those losses could add up to $3 billion.
Among the immediately impacted communities, Pensacola has the largest overall loss in amenity value at $1.6 billion, followed by Gulfport with $1.2 billion in losses. Per home, the average loss in amenity value for Gulfport is $56,000, making it the hardest hit, followed by Mobile with $45,000 and Pensacola with $40,000 in losses per home. Additionally, 15 major counties along the Mississippi coast and along to the Atlantic coast of Florida have 600,000 residences along the shoreline that are in danger of tragic amenity losses.
If the oil is pushed by ocean currants along the Florida Gulf Coast, the loss in amenity value rises significantly. The beach communities of Panama City, Tampa Bay, Cape Coral, and Naples could be affected, with over 238,000 homes along the shoreline. The total loss in amenity value could reach up to $11 billion for those areas. And while chances stay low, the possibility of the oil reaching the Atlantic coastline of Florida does exist. If this happens, more than 295,000 properties within 1,000 meters of the beach could be affected in areas like Miami, Key West, Palm Bay, Daytona Beach, and Jacksonville. Total losses in amenity value could reach up to $13.5 billion.
“Our hope is that the oil spill is contained and the loss in amenity value is further moderated by a speedy cleanup and return of beach amenities to the affected communities’ homeowners,” said Mark Fleming, chief economist with CoreLogic. “The total loss in amenity value in communities already being impacted by the oil spill is potentially as high as $3 billion over five years.”
Of course, these figures are projected values of the spill and do not factor the containment of Deepwater Horizon and clean-up efforts. Hopefully, these efforts can change the potentially negative future for shoreline property owners in an already fragile housing market as these communities suffer the impact and distress of the spill on the local economy.
Written by Kelly Mellott