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Title: Tolerance of the Side Effects? Hedonic Pricing Analysis of Housing in the Permian Basin
Citation Type: Miscellaneous
Publication Year: 2023
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Abstract: While oil was first discovered in the Permian Basin in the early 1920s (Vertress, 2019), the most recent production boom began in 2010. Lasting now more than a dozen years, the boom has been driven by changes in production technology that allowed producers to apply unconventional oil and gas (UO&G) technology (horizontal drilling and hydraulic fracturing) with the layered geology of the Permian Basin (Maniloff & Mastromonaco, 2017; Popova, 2020; Popova & Long, 2021). In relative terms, the boom in the Permian, composed of parts of New Mexico (NM) and Texas (TX), represents one of the most cost-effective and productive oil fields in the world. The boom has generated significant in-migration, employment, earnings, and tax revenues. Currently, the oil and gas (O&G) industry constitutes an estimated 8% of U.S. GDP (Pricewaterhouse Coopers, 2021). For TX and NM, the O&G industry contributed 10.8% and 11.1% of each state’s 2022 GDP, respectively, driven significantly by the Permian boom (Bureau of Economic Analysis, 2023). NM is highly reliant on the industry as it contributes approximately 35% of state budget revenue (NMOGA, 2021). Played out over time, the policy context of a boom centers on balancing the benefits of increased earnings, employment, and public revenues against the environmental damages from UO&G development (Maniloff & Mastromonaco, 2017), and whether there is any localized “resource curse” attached to future economic development in the extractive region. As part of that larger context and given that housing markets aggregate and monetize the preferences of buyers and sellers, as well as capitalize present values, changes in housing prices due to UO&G development are important reflections of the community perceptions of these tradeoffs in benefits and damages (Krupnick & Egarthe, 2017). The objective of this analysis is to examine whether and to what degree some of the effects of the boom, such as well drilling and associated environmental effects, are being capitalized into the regional housing market. To econometrically isolate such effects on housing values, while controlling for other factors, the hedonic pricing method (HPM) is employed. A sample of more than 6,000 individual residential properties are collected for a nine-month period in 2022-2023, drawn from both the 55 counties of the Permian, and a set of 18 control counties in eastern NM and western TX. Since both are sales price non-disclosure states, houses listed for sale on Zillow are webscraped to obtain estimated price and structural housing characteristics (e.g., bedrooms, bathrooms). Each residential property is geolocated and paired with location attributes (e.g., population density, public water availability, unemployment rates) from the Census Bureau and other governmental data sources. Spatial data is collected on environmental effects (air quality, and earthquakes) connected to the boom in unconventional (UO&G) development. This includes unique modeling results (Goodkind et al., 2023), to isolate both fine particulate matter (PM2.5) concentrations, as well as the increment attributable to O&G production. Spatially detailed data on more than 220,000 (active) wells is obtained from both NM and TX and used to generate well count density measures for various buffers around each house. Lastly, the analysis is unique in treating the region wholistically (both NM and TX) with a carefully selected set of control counties.
Url: https://econ.unm.edu/common/documents/2023nm-research_leek-etal.pdf
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Authors: Leek, Casey L; Erin Cohen, MS; Andrew Goodkind, Ba L; Berrens, Robert P
Publisher: Department of Economics, University of New Mexico
Data Collections: IPUMS USA, IPUMS NHGIS
Topics: Housing and Segregation
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