What price cleaner water?

Environmental economists based at Waikato Management School have been trying to put a value on some of the benefits of cleaner water in the Rotorua Lakes by looking at property prices and the behaviour of anglers.

The study, led by Dr Dan Marsh, was based on the idea that property prices around the Rotorua Lakes depend on various attributes -- including water quality. Better quality water is likely to mean higher prices, all things being equal.

The researchers analysed data for more than 1100 property sales over a five-year period within 1km of Lakes Rotorua, Rotoiti, Tarawera or Okareka. The data set included variables capturing property characteristics, property sales data, water quality data and distance to lake. 

The analysis showed a clear link between secchi disk depth (the water quality/clarity indicator) and house sale price. A one metre improvement in water clarity resulted in an average increase in house sale price of about 7%. As an example, a house on Lake Rotoiti worth $300,000 would increase in value by around $70,000 if water clarity improved by three metres.

Another project is using data from the National Angling Survey to look at how water quality affects anglers’ choice of fishing destination. Travelling to a more distant lake increases travel cost, so this data can be used to put a lower limit on the amount that anglers are willing to pay to achieve better water quality. Researchers have found that even a small improvement in water quality could produce benefits for anglers worth in excess of $1 million per year.

Economists can also contribute through cost effectiveness analysis of alternative water quality policies. Current work includes large simulation models to figure out the best mix of regulations and incentives to reduce nitrate leaching from dairy farms -- a key factor in achieving cleaner waterways. Recent results show that a flexible approach costs half as much as imposing a uniform cap on nitrogen emissions.