Friday, December 27, 2013

Latest Report of the Impacts of Shale Gas Development on the Housing Market

from an article by Marcellus Monthly: a project of the Thomas Merton Center

A new study of property values by Resources For the Future ( quantifies what many skeptics knew in their bones: An unconventional gas lease is often just a first step toward giving up the property entirely, with or without financial compensation. The study of 1+ million home sales, over a 7-year period, finds that property values fall in proximity to nearby gas wells.

Even properties with producing wells, whose values reflect the expected streams of royalties, don’t maintain a price premium for long. (The study covered only single-family homes, so any effects of drilling on farming or on other uses of the property weren’t considered.) These findings complement anecdotal evidence and legal filings, which tell of fast production declines, short-changing on royalty payments, cancellations of homeowner insurance, and denial of mortgage loans to would-be buyers.

As the negative impact on nearby non-leasing real estate becomes more evident, leaseholders are being warned of possible lawsuits from their financially-strapped neighbors for “loss of enjoyment” of those homes as well as decline in their value.

As commonly written, a drilling lease simply allows the gas company to operate on the owner’s land; it doesn’t indemnify the leaseholder from any damage claims by others. So, while the driller takes off with the gas, the homeowner is holding the bag. Worst case, a leaseholder finds they can neither remain in the home, nor sell it for any acceptable price.