Marcellus Shale has minor overall impact on property values

By David Evenhuis, Esq.

Natural gas drilling may be in the early stages of its modern development in Pennsylvania but Realtors® have been eager to learn of its impact on property values. A recent study from Penn State, however, suggests that drilling activity in the Marcellus Shale has provided less of a boost for overall property values than many had expected.

Method of research

The authors of the study sought to measure changes in overall real estate market values at both county and municipal levels. Changes at these two levels reflect the sum value of all properties in a given locale - data which may significantly affect future appraisals. Researchers examined market values from 2007 to 2009, the early years of Marcellus development. The study did not include more recent data, when activity really exploded but Realtors® may still gain insight into a realm of great uncertainty.

Impact on market values

Market value is an estimate of what landowners would receive if they sold their properties in a competitive market or, stated another way, the fair price buyers likely would pay. Changes in overall market values reflect changes in demand for property in general.

Looking at changes on a broad county level, the study found no real pattern linked to Marcellus development. From 2007 to 2009, counties with more than 90 new wells increased average property values by 13.8 percent - only slightly higher than the 13.7 percent average increase in counties with no new wells over the same period. Statewide property values on average increased by 12.5 percent. By contrast, counties with low or medium level Marcellus activity experienced slightly smaller average increases.

Impact was more directly felt at the local municipal level. Townships and boroughs with a greater number of wells saw property values increase more dramatically than those with fewer wells. Municipalities with 20 or more Marcellus wells experienced a 15.8 percent increase in average market value, compared to an increase of only 12.2 percent in those with no wells.

Implications

The most surprising fact from the study is that, when looking at broad regions of the real estate market, Marcellus Shale development has had a relatively minor impact on overall values. General trends, however, may fail to address questions about changing market values for parcels immediately adjacent to drilling activity.

The research only reflected the overall value of properties in areas of Marcellus development. In communities with significant drilling activity, real estate is impacted by a variety of factors affecting market value. Hotels and support services have emerged, increasing the market value of nearby parcels. On the other hand, properties near well sites or compressor stations have suffered from property damage and decreased water quality. The impact of development on individual landowners often depends upon location relative to such changes, not simply on overall activity in an area. Tremendous value increases for properties with productive wells may be offset by decreases elsewhere in an area.

More research is needed certainly to determine the impact of Marcellus development on current property values in Pennsylvania. But this study provides some of the first comprehensive data drawn from actual market transactions. While single purchases in the Marcellus region continue to be a speculator's game, this new information can provide Realtors® with a deeper understanding of the factors impacting overall market trends.