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University of South Alabama Studies Impact of Gulf Oil Spill on Real Estate Values

One of the largest offshore oil spills in history occurred when the massive Deepwater Horizon semi-submersible oil drilling platform suffered a drilling-related explosion, was engulfed in flames, and sank. The economic and environmental effects of this event are still not fully understood, so studies are ongoing to determine the impact that it has had on the Gulf region. One such study, entitled “The Gulf Oil Spill and Its Impact on Coastal Property Value Using The Before-and-After Procedure” was completed several months ago by the University of South Alabama on the effect that the spill has had on Alabama coastal property values.

718977_big_oli_rig.jpgIn order to determine the amount of decline in value on affected coastal properties, the study made use of the before and after procedure (BAAP) that is based upon market prices preceding the Deepwater Horizon incident and data indicating the impacted value of those same properties after the accident occurred. The study seeks to determine if a stigma has attached to these properties, which amounts to the perceived blemishes on those properties that have arisen as a result of the spill. The study focused on evaluating properties located directly on the waterfront, multiple types of residential properties, and both developed and undeveloped land. It relied upon sales transaction records in the area for the year prior to the spill as a comparison basis to help determine the possible drop in value attributable to the spill.

The research showed that the possible effect on the studied areas was significant, and vacant residential properties on the waterfront suffered the greatest decrease in values after the spill, as they dropped over 42 percent in value from April 20, 2010, to August 15, 2010. Single-family waterfront residences saw a half-percent drop during the same period, and condominiums saw a 3.5 percent drop. However, much of the decrease in value was likely due to a downturn in prevailing economic conditions. A control group of properties located in Florida (not affected by the spill) was also tracked, and similarly situated properties also saw condo and vacant waterfront land prices drop by over 20 percent during the same time period, though single family residences saw a jump in value of over 30 percent. As such, the numbers indicate that only the drop in undeveloped property prices may have been caused by the oil spill.

While the study rendered a somewhat surprising result for many – that there was not a stigma attached to waterfront properties in the Gulf region of Alabama that caused a decline in property values – it also noted that there are some limitations to the analysis. The BAAP method is best served by having real-time property sales price information for continued evaluation to render more accurate results. Additionally, the BAAP does not factor in a decline in potential buyers in the market, and instead only focuses on sales prices properties during the study’s time period. In order to formulate a more full analysis of the Gulf Oil Spill’s effect on real estate values in the region, an adjustment process for the decline in buying activity is needed.

With the passage of time, we have seen that the long term effects of the Deepwater Horizon incident have been much smaller than expected. If a study were done today, I suspect it would reveal no lingering effect on any property values along the Gulf.