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

Environmental and Resource Economics https://doi.org/10.1007/s10640-025-00972-4 From the Beach to the Backyard: How Harmful Algal Blooms Impact Housing Renovation Decisions Will Georgic1 · W. Jason Beasley2 · David Wolf3 Accepted: 7 February 2025 © The Author(s) 2025 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. Keywords Algae · HAB · Housing · Renovation · Averting behavior · Control function Will Georgic W. Jason Beasley David Wolf 1 Department of Economics and Business, Ohio Wesleyan University, 218 RW Corns Building, 78 South Sandusky Street, Delaware, OH 43015, USA 2 Department of Economics, Western Michigan University, 5408 Friedmann Hall, Mail Stop 5330, 1903 W Michigan Ave, Kalamazoo, MI 49008, USA 3 Graduate School of Economics, Kobe University, Kobe, Hyogo Prefecture, Japan 13 W. Georgic et al. 1 Introduction The localized presence of harmful algal blooms (HABs) has deleterious impacts on human health and regional economies (Kouakou and Poder 2019; Adams et al. 2018), while also impacting recreational decisions (Zhang and Sohngen 2018; Wolf et al. 2019). Despite a growing body of literature linking higher concentrations of HABs to lower housing values (Wolf and Klaiber 2017; Bechard 2021; Osseni et al. 2021), their full impact on household well-being is still relatively unknown, especially when considering decisions made throughout the duration of homeownership and not just at the time of sale. Consider, for instance, households that decide to stay in areas plagued with HABs. Instead of relocating, these households might reduce their exposure by building a residential swimming pool in their backyard as an alternative to swimming at the beach. The influence of HABs on this type of decision isn’t straightforward, owing to two competing effects. Firstly, just as air filters are used in response to heightened air pollution (Sun et al. 2017; Liu et al. 2018), homeowners might see residential pools as a substitute for degrading water quality in a nearby waterbody. Conversely, the presence of environmental hazards might lead homeowners to postpone or forgo home improvements either due to the prospect of relocating sooner than expected (Depro and Palmquist 2012), or because it might lower the returns on investments in a durable asset. Thus, the overall impact of these environmental issues on home renovation choices is ambiguous. An open and important question arises: when faced with deteriorating environmental amenities, do homeowners delay value-enhancing property investments? We answer this question by estimating the influence of HABs on substitute (e.g., residential swimming pools) and complementary (e.g., secondary garages) renovation decisions using a capital-stock adjustment model (Helms 2003) and housing and remote-sensing algal data collected from six Ohio counties bordering Lake Erie between 2011 and 2018. Using a discrete-time duration model, we find a positive relationship between various measures of algal intensity and home renovations that substitute for the degraded environmental service. Our primary results suggest that pool construction has an elasticity of 4.04% with respect to nearby algal intensity, with the effect amplifying the closer a property is to Lake Erie. Conversely, we find that the construction of second garages– which are often constructed to store recreational equipment like motor boats, jet skis, or even kayaks and paddleboards– has an elasticity of −1.79%. Taken together, our findings indicate that households are more likely to make value-enhancing investments during periods of high HAB concentrations if the investment acts as a substitute for nearby water quality, and less likely if it serves as a complement. This aligns with predictions from our theoretical model. Our findings are of both practical and academic importance. First and foremost, the results better reveal the full distributional impacts of HABs. The existing literature has primarily focused on decisions made by households relocating in response to poor water quality, whereas our analysis considers the costs borne by all homeowners, including those who choose to stay. Secondly, as HAB intensity is expected to worsen with climate change (Michalak et al. 2013), this analysis contributes to a body of literature studying the impact of climate change salience on residential construction decisions (McCoy and Zhao 2018; Barrage and Furst 2019). The paper proceeds with a description of the theoretical model and the empirical specification. We then briefly discuss the data before presenting the results. We conclude by considering the implications of our findings. 13 From the Beach to the Backyard: How Harmful Algal Blooms Impact… 2 Theoretical Model In our model, utility arises from housing services (h), environmental services (e), financial asset services (m), and consumption of other goods (z). Housing services are a function of initial building capital (k0) and a renovation decision (r), given by h(k0,r).1 Environmental services are a function of the neighborhood features (n) and the local presence of harmful algal blooms (HABs) (a), such that e(n, a).2 HAB presence impairs recreation through multiple channels, including changes in fishing activity (Wolf et al. 2017), boating decisions (Alvarez et al. 2019), and beach recreation (Zhang and Sohngen 2018; Wolf et al. 2019). Therefore, HABs are a detriment to environmental services ( ∂∂ ae < 0). Financial asset services are a function of the returns from the owned assets. Returns are impacted by algal blooms, neighborhood features, initial building capital, and the renovation decision, such that m(a, n,k0,r).3 There is evidence that HAB presence negatively capitalizes into property values ( ∂∂ m a < 0) (see Wolf and Klaiber 2017 or Bechard 2021). This setup defines the individual problem to maximize utility through the choice of renovation (r) and consumption (z), given h, e, m (...truncated)