Was Blind, But Now I See: The Million Dollar View

How much are people willing to pay for a view? Most of us would agree, no doubt, that a panoramic view of the ocean adds value to a residential property. But how much does it add? This is a question that researchers have been trying to answer for decades. As is often the case, research has demonstrated what many of us already know to be true but have no way of proving—that vistas of water carry a premium for residential properties and that premium diminishes as distance from the body of water decreases. The scholarly literature is almost unanimous on this point. But just how much are people willing to pay?

In my last post, I discussed some of the more basic aspects of the view amenity. One issue that came up was the concept of a “borrowed view.” If a homeowner purchases a home with an on ocean view, but the lot between that property and the ocean is vacant—that view is a “borrowed view” and a temporary benefit. The property owner may enjoy that view only until the vacant lot is developed.

This one example illustrates just how fleeting the view amenity really is—and yet it carries with it huge premiums. A 1997 study by Benson in Point Roberts, Washington, found that, compared to no view at all, an ocean view carried a 32% premium and a partial ocean view a 10% premium. In 2001, Seiler, et al., found that homes with views of Lake Erie carried a 56% premium, which translated to $115,000. Bin, et al. in 2008 found that in a North Carolina coastal community, buyers paid $995 for a 1-degree increase in views of the Atlantic. In a highly-cited 2012 study, Hamilton and Morgan found that buyers would pay $1228 for a 1-degree increase in views of the water in Pensacola Beach, Florida. Rohani, in 2012, found that views of the Hauraki Gulf in New Zealand carried a 50% premium if "wide." “Moderate” and “slight” views of the gulf carried a 30% and 15% premium, respectively. When distance from the source of the view—in this case the body of water—was considered, these studies found that the premiums decreased as distance increased.

Though it is often dangerous to generalize results from these types of studies, they all seem to confirm what we already suspect—that buyers will pay for views of the water. Indeed, compared to other research into the impact of different amenities (or disamenities) on property values, the findings in the view literature are remarkably consistent. In addition, the view literature is quite sophisticated in its methods when compared to other areas of research.

A view is a general word simply referring to whatever lies open to sight; prospect, scene, vista refer to a landscape or outlook. But in real estate what is a view, really? And how do you express a view economically? The hedonic model has been the “go to” option for amenity and disamenity research for nearly 25 years. The classic, more crude approach to accounting for an amenity is to use a dummy variable for the presence of a certain amenity. For a neighborhood amenity such as a public park or school, this may be expressed as a dummy variable for whether each house is within a certain distance to a public park or school. However, a view is not equal to the source of that view. A view of the ocean cannot be fully accounted for by a proximity variable. There must be some measure of the view itself.

In the “old days,” researchers measured views by physically inspecting properties. This approach has obvious limitations. Not only did it keep samples small given the amount of work involved, but it also introduced another opportunity for the researcher’s own biases to express themselves in the study. As any user of MLS knows, one person’s “panoramic ocean view” may be another’s “peak-a-boo view.” These judgments were then entered into the hedonic model as dummy variables.

Fortunately, researchers now have the technology at their disposal to quantify the view amenity and measure the viewshed from each property in a large sample. Hedonic models may have thousands—even tens of thousands—of observations, and it is infeasible to physically inspect each one. In the past two decades, researchers including Hamilton and Morgan (2011), Hindsley, et al. (2012), and Walls, et al. (2013) have been using GIS combined with elevation tools like LiDAR (Light Detection and Ranging) to construct viewsheds from individual properties. Not only do these tools allow researchers to systematically measure viewsheds for a large sample, but they also allow others to replicate the data (if they are so inclined), lending the data more rigor and legitimacy than a physically-inspected, subjective judgment. These tools, for example, are what allowed Bin, et al. in 2008 and Hamilton and Morgan in 2011, to determine the marginal willingness-to-pay for an additional 1 degree of a continuous viewshed.

These are exciting times for researchers and practitioners interested in property valuation. As a real property damages expert and litigation consultant, I have had the privilege to work on numerous complex cases where parties claim property value diminution from perceived disamenities, such as solar utility farms, powerlines or substations, that break up views. Often, however, despite the potentially high value of continuous viewsheds, the no economic damages are found due to "damaged" views. Keeping an eye on this research is invaluable and informs my work on a daily basis.