From the Beach to the Backyard: How Harmful Algal Blooms Impact Housing Renovation Decisions

Abstract Harmful algal blooms (HABs) impose a wide range of costs on surrounding communities. While the effects of HABs on real estate transactions are well studied, less is understood about whether homeowners make alterations to their homes in response to worsening water quality conditions. Using discrete-time duration analysis, 8 years’ worth of satellite imagery, and residential construction permit data from six Ohio counties bordering Lake Erie, we find a positive and robust estimate of the elasticity of residential pool construction with respect to algal intensity. This suggests homeowners substitute a home renovation for recreational access. We later replace pool construction decisions with those for detached garages and find a negative relationship, indicating that alternative home renovations could be considered as complements to local environmental quality. These findings are consistent with the predictions derived from a theoretical model of homeowner utility maximization and they help to provide a more holistic understanding of the damages caused by HAB proliferation.