Wind farms, residential property values, and rubber rulers

Real estate appraisal experts are challenging the scientific credibility and accuracy of a recent US Department of Energy ('DOE') report on the effect of wind power projects on property values. Albert R. Wilson's new paper asserts that well known flaws in the methodology used in the study raise serious questions concerning the credibility of the results, and the DOE report's authors failed to follow well-developed and tested standards for performing regression analyses on property sales. His paper can be accessed by clicking on the links at the bottom of this page.

I recently examined a document published by the Department of Energy's Lawrence Berkeley National Laboratory titled "The Impact of Wind Power Projects on Residential Property Values in the United States: A Multi- Site Hedonic Analysis" (hereafter "Report"). I express no opinion concerning the impact of wind power projects on residential property values and instead focus on the underlying methods used in the development of the Report, and the resulting serious questions concerning the credibility of the results.

As stated in the title the primary bases for the conclusions drawn in the Report are hedonic analyses of residential real estate sales data. A hedonic analysis in turn is based on the assumption that the coefficients of certain explanatory variables in a regression represent accurately the marginal contribution of those variables to the sale price of a property.

In Conculsion

While I have other issues with the Report and again reiterate that I have no opinion on the influence of wind farms on residential sales prices, the concerns I have addressed here lead to the conclusion that the Report should not be given serious consideration for any policy purpose. The underlying analytical methods cannot be shown to be reliable or accurate.

The reasons for this conclusion discussed here may be summarized as:

1) Lack of access to the underlying data prevents the independent validation of the data, replication of the analysis, testing of alternative analyses, or testing of the conclusions against the real market.

2) The peer review process used for both the literature and the Report can only determine the acceptability of the papers for publication. It cannot reveal the validity, accuracy or reliability of the work behind the papers.

3) Given the peer review conducted, the fact that no published and recognized standards for the development of an accurate and reliable regression on sales price were used render the Report of highly uncertain value for any purpose.

4) The exclusive use of a test of statistical significance only indicates that the coefficients for Distance and View variables are not conclusive. What we do not know is what those coefficients actually represent. Only tests of economic significance would provide an answer, and none has been conducted.

5) Low explanatory power, 13% less than an acceptable minimum for an accurate regression on sales price.

Albert R. Wilson is principal of A. R. Wilson LLC, based in Woodland Park, Colorado. Wilson has evaluated the financial impacts of environmental and other risks on business and real property values for more than 25 years, and has taught and written extensively about these impacts on the appraisal, legal, banking and governmental communities.

Wind Farms Residential Property Values And Rubber Rulers

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FEB 16 2010
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