Looking Under the Hood 5.7 – A Recent Study of Lead-Contaminated Drinking Water & Effects on Housing Prices in Madison, WI

Real estate pricing research provides evidence that properties potentially exposed to perceived or actual health risks through groundwater, soil, and air may experience price impacts. Looking Under the Hood reviews publications that illustrate the theoretical, methodological, and data challenges faced by scholars and practitioners studying contamination and its impact on property values.  

There has been significant media attention surrounding lead contamination within municipal water systems over the past few years. Theising (2019)[1] analyzed the impacts of lead-contaminated water systems on residential property values in Madison, Wisconsin. Several months after the federal Lead and Copper Rule was implemented in 1991, Madison water systems were found to be in violation of lead concentration guidelines. In early 2000, the city of Madison concluded that the removal of lead service lines was the most effective remediation strategy and ordered mandatory remediation for 5,700 homes beginning in 2000 until 2015. As part of the program mandate, homeowners of private and public property were required to pay for the cost of remediation with costs around 1% of assessed value.

Property specific transactional data was obtained from the Dane County assessor’s office and contamination specific information was attained from the Madison Water Utility. The residential assessor dataset of over 200,000 residential transactions was filtered to exclude non-arm’s length transactions and repeat sales. The data had several limitations including the lack of available structural characteristics over time. Thus, repeat sales within the same year with sale price differences of greater than 20% were excluded.

Theising utilized hedonic regressions, including difference-in-differences technique as a means for observing the impacts of remediation of lead pipes on property values. Following remediation, Madison residential property values increased by 3-4% as compared to properties without lead pipes. The results suggested that costs required for remediation capitalize on higher house values and provide return on investment. The author concludes that Madison’s program is unique and other municipalities may benefit from similar strategies that require mandatory remediation paid by homeowners.

[1] Theising, Adam. “Lead Pipes, Prescriptive Policy and Property Values.” Environmental and Resource Economics 74, no. 3 (September 20, 2019): 1355–82.