The Economics of Lakes - Dollars and $ense

Maine's 6000 scenic lakes are as woven into our quality of life as they are into the landscape. Clean lakes maintain lakeshore property values, contribute to the economic status of entire communities, provide lower cost drinking water, and offer intrinsic, aesthetic value for recreation. Defining the value of lakes allows us to put the risk of degrading water quality and the cost of protecting our lakes in perspective.

image:  person on a dock

This research on the economic value of lakes was conducted by the University of Maine and DEP. In the initial work, a pilot survey was developed to estimate the local economic impact of lakes in local economies. The survey clearly demonstrated that the economic loss in property value is linked with a decline in lake water quality. Other measures of the value of Maine lakes have been investigated, including estimates of the overall value of lakes to Maine’s economy and the values that transient visitors place on Maine lakes. This research is a valuable tool that can be used to garner public support for lake protection in Maine.

Many Individuals Use Maine Lakes

As many as 66% of all Maine adults (600,000 people) use lakes during the course of each year. As many as 50% of Mainers list swimming as a primary activity and 400,000 use lakes for their drinking water. At least 65,000 people, many of whom are out of state residents, visit youth camps each year. Total recreational use exceeds 12 million user days, including both Maine residents and out of state users.

The Value to Maine Residents Not Owning Lakefront Property

A study1 by the University of Maine and DEP investigated the economic value of lake use and water quality to Maine residents who do not own lakefront property. These so-called access users represent only part of the total lake use, but are often overlooked in our public contacts because lake front property owners are the people we most often interact with. This work complements three previous studies investigating the effects of water quality on property values and on the total economic benefits of lake use in Maine. These earlier studies found that a decline in water clarity can reduce property values by as much as $200 per frontage foot, representing hundreds of millions of dollars in lost property value and that lake use in general supports more than 8000 Maine jobs.

This study is a partial estimate of user's economic value and satisfaction because methods constrained estimates to only the most popular Maine lakes and could not include out-of -state users. Well over 200,000 Maine adults are access users on lakes annually. About 78% swim, 64% recreate near the shore, 49% fish from a boat and roughly equal numbers (ca. 40%) use powerboats and canoes. Maine resident access users spend as much as $153 million annually on their recreation, 59% of which is spent in the communities nearest those lakes. This use supports as many as 3,000 jobs and generates in excess of $30 million income for Maine residents.

People Who Use Lakes Get More Than They Pay For

Economists can use information about rates of recreational activity or purchases and their costs to estimate how much value people derive vs. how much they actually pay. If an individual pays less than they would be willing to for a day’s activity, it represents an estimate of the satisfaction or net value they place on the use. Uses such as recreation and water supply, offer more than $325 million excess value to lake users each year. In addition, the overall good water quality of Maine lakes is estimated to boost property owners’ value for lake use by $6 billion dollars more than the cost of the property they purchased.

This study also found that access users place substantial value on their use of Maine lakes (between $7.6 and 17.8 million dollars) in excess of the cost to them of participation in fishing, swimming, camping etc. This satisfaction is negatively affected by reductions in water clarity and is greater on clear, large lakes than small, less clear waterbodies. Models derived from the survey results suggest that a 1/2 meter decline in the water clarity of the 143 most popular Maine lakes will result in a loss of up to half a million dollars in net economic benefit (user satisfaction) and $1.6 million in total sales activity associated with those lakes. The study also found evidence that these access users place a value of as much as $1.7 million on a statewide program to prevent a relatively small (1/2 meter) reduction in the current minimum water clarity. The value of such a program is much higher ($6 million) if it was designed to prevent a decline to bloom conditions on all lakes. This represents an annual willingness to pay of $13 per user for the preservation of water quality.

Water Clarity and Property Values

There is no single feature of lakes which affects people's enjoyment of the resource more than water clarity. Repeated nuisance algal blooms have been recorded on more than 53 Maine lakes and another 493 are considered at significant risk. One component of how people value lake water quality is reflected in what they will pay for property. The University of Maine recently completed the first ever definitive study2 that clearly demonstrates one facet of economic loss when lake water quality declines. The information here comes from that study and from additional work by DEP.

Individual models were fit for 22 lakes in 4 regional groups which allow calculation of the component of property price which is affected by water clarity. For example, properties on China Lake sold for an average of $107,070, of which 15 % ($15,996) was dependent on water quality. One can compute the increase or loss in value if water clarity changes. If the condition of China Lake continued to decline, an additional loss of more than $16 million dollars could occur. Current losses are probably several times that amount. These results show that these effects are very large and that they are greater for degrading water quality than for improving. Of 451 Maine lakes for which we have substantial water quality data, 191 are below regional expectations for lakes in undisturbed watersheds. The estimated property value loss for these 191 lakes is about $256-512 million. It is clear from these estimates that the economic losses due to declines in lake water quality that have already occurred are real and very large.

The future property tax implications of these losses can be substantial. More than 60% of all municipal revenues in Maine come from property taxes which are directly related to property values. For example, the Town of Belgrade has a total tax valuation of almost $211 million, of which 60% is lakefront property. If the average water clarity in the local lakes were to decline one meter, the town stands to lose almost $10.5 million (5%) in total property value that should eventually be reflected in tax rates. Belgrade would have to raise its tax rate and the actual taxes paid by non-shoreline owners would rise by over 5%, while those paid by shoreline owners would decrease as they lost property investment value. The degree to which tax burdens would be shifted among regional towns is difficult to estimate and depends in part on which lakes experience significant water quality declines. No matter what the distribution of this loss would be, the real losers are the taxpayers and landowners whose investments have been eroded.

More recent research on 36 lakes in 4 regional groups in Maine took another look at how water clarity changes property values3. It was found that properties on lakes with one meter greater clarities have higher property values in the range of 2.6% ($2,563) to 6.5% ($9,271) depending on the market. Likewise, a one meter decrease in minimum transparencies cause property values to decrease anywhere in the range of 3.1% ($3,084) to 8.5% ($12,050). Similar effects were seen in New Hampshire and Vermont as well, and there are indication that effects such as these hold true in Minnesota.  Like previous studies, properties were compared based on variables such as locational data items such as distance to nearest substantial town, paved road, density of other properties and cottages, property's lakefront footage, and lake surface area. Structural variables were also included in the property's value and includes items like age and floor area of the unit, type of water supply and wastewater system, and presence of improvements (additions). Of these variables, lake surface area seems to have a large affect on the range of property values as it may affect individual perceptions of acceptable water quality. For example, smaller lakes in Maine tend to have lower clarities, and people tend to have the expectation that the clarity will be lower on these lakes. However, on a lake that already has a low clarity, a one-meter change is going to be more noticeable than it would be on a larger lake.

Water Quality Makes a Difference to Use Rates and Satisfaction

Surveys1 show that water clarity, quality of swimming, and scenic beauty are important to most people when they choose which lake to visit or where to buy property. A noticeable gain in water quality could increase statewide use rates by up to 13% (1.6 million user days) each year, three quarters of this being Maine resident use. Of the total $107 million increase in economic activity, about $25 million in additional spending would come into the state. Conversely, a visible decrease in water quality would mean substantially greater losses.

People Are Willing to Pay for Lake Protection

Faced with a potential loss of lake water quality, people told us that they would be willing to pay for the maintenance of good condition4. Maine residents who are transient (day) users only said they would contribute at least $6 million annually. The potentially high property value loss as well as loss of enjoyment means that shorefront property owners stand to lose as much as $36,000 per property if water clarity declines. This makes an investment in lake protection a good deal for many lake residents, as we have seen time after time in volunteer projects statewide. Many towns are acknowledging the need to maintain property values (tax base) and their quality of life by subsidizing lake protection projects.

It is clear from our studies that the economic losses due to declines in lake water quality which have already occurred are real and very large. Beyond mere expenditures and the jobs lakes support, the quality of Maine life is directly linked to the beauty of its lakes.

1The Effects of Water Clarity on Economic Values and Economic Impacts on Recreational Uses of Maine’s Great Ponds. Jennifer Schuertz, Kevin Boyle, and Roy Bouchard. Maine Agricultural and Forest Experiment Station Misc. Report 421, Jan 2001, Univ. of Maine.

2Water Quality Affects Property Prices: A Case Study of Selected Maine Lakes. Holly Michael, Kevin Boyle, and Roy Bouchard. Maine Agricultural and Forest Experiment Station Misc. Report 398, Feb 1996, Univ. of Maine.

3Boyle, Kevin and Roy Bouchard, 2003.  "Water Quality Effects on Property Prices in Northern New England," LakeLine Vol 23(3), pp. 24-27.

4Economic values and impacts associated with access user's recreational use of Maine's Great Ponds.  Jennifer F. Schuetz. MS Thesis. University of Maine August 1998. pp. 87-93.