House prices in UK’s only fracking area may drop by 4%

John Hewitt Jones

August 11, 2016

Fear of earthquakes caused by shale gas exploration could see a 4% reduction in house prices near fracking sites, according to a report published by the University of Bristol.

The study tracks the impact of drilling in the Preese Hall 1 site in Lancashire – currently the UK’s only licensed fracking site – on house prices in the area.

Earthquakes following the fracturing of the first well near Blackpool in 2011 did not cause physical damage to buildings but have had a significant impact on consumer confidence.

Fears of damage following the tremors are associated with a house price drop of between 2.7% and 4.1% within a 30km radius of the affected area, according to the report.

After oil and gas exploration company Cuadrilla Resources hydraulically fractured the first well near Blackpool, two earthquakes of magnitude 2.3 and 1.5 on the Richter scale were detected by the British Geological Survey.

Following the seismic events an average household would be willing to pay between £4,866 and £7,388 per year to avoid areas where fracking induced seismic activity according to the research.

Using a theoretical model the report estimates fracking may have wiped a maximum of between £706m and £1.1bn off house price values across the area examined by the study.

In addition the report demonstrates a statistically significant reduction in house prices of between 1% and 1.5% for the period 2008-2014 in areas where shale gas development was mentioned in the licence application.

Speaking to Mortgage Introducer, Dr Stephan Heblich, reader in economics at the University of Bristol, said: “We’re fairly sure that the magnitude is not enough to damage the houses. My feeling is it’s an awareness argument. If you look at the number of people searching for fracking on Google trends, you see hardly anything in 2008 when the issue first came up. The first searches begin to come up a few years later, when it came to the forefront of the public agenda.”

Responding to the government scheme to offer homeowners in regions near fracking sites up to £10,000 compensation announced over the weekend, Dr Heblich said: “I’m kind of a little bit afraid potential externalities may not be covered by the payment. On the other hand, a figure of around £10,000 is more precise than a generally-specified payment to the community.”

Since the 1934 Petroleum Act, all subterranean petroleum is owned by the crown.

Under government legislation passed in August 2015 the Secretary of State for Communities and Local Government has the ability to intervene in fracking planning decisions and to fast-track appeals over license refusals that are taking too long.

Although commercial shale gas extraction has not yet begun, Petroleum Exploration and Development Licenses grant the right to explore for shale gas or coal bed methane.

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