Proposition: permanently decreasing the desirability of our city as a place to live is a bad idea, actually

 "The lovely landscape and lakes mattered not just to nearby residents but also to those in surrounding neighborhoods. As a Realtor I was awed by the geographic spread of those who valued and used the area. It made the area a 'destination.' Don't lose those irreplaceable assets." -Mary, someone who signed and commented on the petition to save the Shaker Lakes.

Of the many reasons I think the Shaker Lakes are worth preserving, the one that stands out above the rest, and that in some ways encapsulates all the other arguments, is this: the lakes undeniably make the area around them a nicer and more desirable place to live. Losing them would make the area a less nice and less desirable place to live. We should be very reluctant to do something that would make our community a less desirable place to live, and should thoroughly explore all reasonable alternatives before doing it.

It was recently suggested to me that I look for data to support this argument, so I did, and I was honestly astounded by what I found. I wish I had done it sooner, because it turns out I was dramatically underestimating the relevant numbers.

In my first post on this blog, I wrote this:

I would expect that the property values of hundreds of homes would decline, starting with large declines for homes adjacent to the lakes and with smaller and smaller declines the farther away you get.

If property values decline, that isn't just bad for the people who own those properties.

Property values reflect how desirable a place is to live. Shouldn't we be cautious about doing something that makes our community a less desirable place to live?

I could easily imagine that the property values of those hundreds of homes, in aggregate, would decline by millions of dollars if both lakes permanently cease to exist. That would not only reflect the area around the lakes becoming a less desirable place to live, it would also have a very concrete effect of lowering the tax revenue for the cities in which those homes sit. For every year going forward, the decision to not invest in preserving the lakes would be paid back with less revenue for those cities.

What do we see if we try to quantify this effect on property values? Let's find out.

First of all, I don't think it's necessary to present data showing that a house with a view of a lake will be worth more than a comparable house without a view of a lake. I think we all intuitively know this is true. There is, however, a large body of literature supporting this statement.

What about a house that is near a lake, but doesn't have a view of the lake? That's where we might feel less certain, and that's a more important question to answer, because it covers far more houses.

I looked up peer-reviewed literature addressing this question, and it turns out that indeed, as I suspected, there is good evidence that being near a lake adds value to a house.

There are many factors that affect the value of a house. These include factors intrinsic to the house, such as size, number of bedrooms, the condition of the house, what features it has, etc., as well as factors extrinsic to the house, including features of the surrounding environment. Researchers try to answer the question of how a given factor affects value by looking at all home sales in an area over a time period and building models that take into account all these factors. This makes it possible to ask, if all other factors are held equal, how does the presence or absence of a certain feature of the surroundings (such as a nearby lake) affect the price? If you're only comparing a few houses to each other, it's impossible to answer this with any confidence, but with a large enough sample size, we can make valid conclusions.

One study I found (Cohen, et al., 2015) looked at 398 home sales in the town of Barkhamsted, Connecticut, in the period 2000-2009. It looked at proximity to both lakes and wetlands. The study concluded, similar to my guess about the Shaker Lakes, that the farther away from a lake a house was, the less the value of the house was, relative to a house close to a lake. Interestingly, it was not able to make any such conclusion about proximity to wetlands.

How much value is added to a house by it being near a lake? A very interesting study from the Netherlands (Luttik, 2000) gives insight into this.

The study looked at sales of nearly 3000 homes in eight different towns in the period 1989-1992. It looked at effects of various environmental factors, such as proximity to lakes and parks.

In five of the eight towns, it was possible to compare the value of homes in the "vicinity" of a lake to homes not in the vicinity of a lake. In all five towns, the study concluded that being in the vicinity of a lake added value to homes, with a premium on home prices ranging from 5% to 10% (average 6.8%).

In two of the towns, there were homes directly on lakes, homes with views of lakes but not directly on them, and homes near lakes but without views of them, so the study could tease out the effects of each of these. For example, the town of Emmen has three districts, one containing a lake. Being in the district with the lake was found to add a 7% premium to home price, having a view of the lake added an extra 10%, and being directly on the lake added an extra 11%. This means that a house on the lake got a 28% premium compared to a comparable house in another district, a house with a view of the lake but not on it got a 17% premium, and a house in the district with the lake but without a view of the lake got a 7% premium.

The numbers from this study allow us to make estimates of how the presence of the Shaker Lakes might affect home values near the lakes. The description of the results for Emmen states, "Location in the district with the lake, which comes to the same thing as location within 1000 m of the lake, attracted a premium of 7% over location in the other two districts."

Supporting this, an EPA study (Walsh, et al., 2010) found that benefits to property values of improved water quality in nearby lakes extended to properties at least 1000 meters from the lake in question.

So let's define location within 1000 meters (1 kilometer or about 0.62 mile) of at least one of the Shaker Lakes as being in the vicinity of a lake. I'm sure that, in reality, the premium to home prices is larger the closer to the lake you are and drops off as you get farther away, but these are rough estimates, so let's assume a fixed premium for any house within 1 km. Let's also assume the premium is 5%, the low end of the range from the Dutch study, to try to err toward being conservative in our estimates.

That would mean a $300,000 house located a few blocks from one of the lakes would lose about $15,000 in value if the lakes went away. As someone who not too long ago became a homeowner near the edge of the 1 km from Lower Lake area, and who considered proximity to the lake as one of the attractive features of the neighborhood, that... doesn't seem crazy?

And it would mean a $1,000,000 house located across the street from one of the lakes would lose about $50,000 in value if the lakes went away. To me, that definitely seems too small a decline, and indeed, we know from the study that a house like that, with a view of the lake, would lose far more value. But I'm going to apply a fixed 5% hit for simplicity's sake, and again to try to err toward being conservative.

There are no houses that are directly on the Shaker Lakes, because the lakes are in public parks. Notably, this isn't the case for Green Lake, the lake on Doan Brook where the Sewer District already restored the dam. The eleven houses with backyards on that lake are really getting huge boosts to their property values, and their owners are lucky that the Sewer District went through with the project at their lake before deciding that dams are bad!

How many houses are in the vicinity of the Shaker Lakes, and what are those houses worth? I decided to try to answer this question specifically for houses in Cleveland Heights, the city where I live (for details on how I did this, see footnote).

To my great surprise, I found that, in Cleveland Heights alone, within 1 km of the Shaker Lakes, there are about 1700 houses, and their total value is about $800 million. I had no idea the numbers would be that high, but it really gets to my previous point about how unusual it is to have such a nice lake in a nature park in the middle of a densely populated residential area.

 

So what happens if the lakes go away and those houses lose, on average, 5% of their value?

That would be a total loss of property value of $40 million.

In Cleveland Heights alone.

Undoubtedly, there would be a similar, if not greater, loss in Shaker Heights. There would additionally be smaller but also significant losses in Cleveland and in University Heights, a smaller suburb that is in the same school district as Cleveland Heights.

An interesting new perspective on the estimated costs of restoring the dams, huh?

I can already hear the objections: "The lakes would be replaced by new parks. The parks would add value."

The Dutch study actually refutes this argument, in two ways:

1. The different features add value on top of each other (like how a house with a water view gets a premium from the water view on top of the premium from being near a lake). All the houses near the Shaker Lakes are already near parks because the lakes are in a park. If being near a park does add value, being near a lake still adds additional value. You wouldn't be replacing the value of a lake with the value of a park, you'd just be subtracting the value of the lake.

2. Unlike lakes, which clearly and consistently added value, the study couldn't conclude that parks consistently add value. Quoting from the study: "It proved to be much more difficult to demonstrate the effect of a park or a recreational area.... This hypothesis was tested in four cases.... Only in one case (out of four) this variable was significant.... This suggests the application of sizeable water bodies in parks or recreational areas [emphasis mine]."

We should also remember that this is only supporting, with data, something we should all already suspect is true based on real world experience. I love living in Cleveland Heights because there are so many nice parks located in or directly adjacent to the city where I can spend time in nature. These parks, for me, are the Shaker Lakes, the Doan Brook ravine, and Forest Hill Park. I love them all, and the ravine is my favorite, so in my personal preferences I actually have an anti-lake bias compared to the average person. But look at all the streets in close proximity to these parks, and what do we see?

We see that all the streets in close proximity to the lakes are extremely desirable places to live, and this is clearly not universally true for streets in close proximity to the ravine or to Forest Hill Park.

 

Across Superior Road from this beautiful spot in Forest Hill Park are streets with houses averaging under $200,000 in value. I lived in that neighborhood for a year and loved being so close to such a great park, but it's clearly not the sort of draw that a beautiful lake is.

There are, of course, many other things about the houses and streets that make those near the lakes especially desirable, but let's not act like it's just a coincidence that all those really nice houses were built near the lakes. It happened because near a lake is a very desirable place to live. And if the lakes weren't there, it wouldn't be as desirable! 

The author of the Dutch study make a very interesting point about the value of water features:

Clearly, the most influential environmental attribute in the study is the presence of water features. This corresponds with findings from landscape psychologists. As is stressed by Kaplan and Kaplan (1989): "Water is a highly prized element in the landscape." Current town developments in the Netherlands indicate that town developers are well aware of the value of water features, given the large number of plans that include water bodies.... Given the immediate effect of water features... and the high premium water features seem to attract, they seem to be the major candidate for private finance or joined public-private finance. A promising option would be to develop a new attractive, green urban area with water features.... The project may turn out to be more profitable because of the premium for an attractive setting." 

The Van Sweringen brothers were smart guys, and they understood this well when they planned Shaker Heights over a hundred years ago. Woe be it to our current city leaders if they're forced to relearn this lesson after it's too late and the attractive water features are gone.

For sure, there are individual people who would value a new park without a lake just as much as they value the existing parks with lakes. But trying to extend that individual preference to the idea that parks without lakes would provide similar value to the community as parks with lakes is fighting a battle against human nature. People like lakes. And any battle against human nature is bound to be an uphill battle. 

So what would be the effect of a loss of $40 million in property values on tax revenues in Cleveland Heights?

That's simple enough to calculate. The effective property tax rate in Cleveland Heights is approximately 3.74%. Therefore, the annual loss in tax revenue would be about 3.74% of $40 million, or about $1.5 million. Every year.

Shaker Heights would be looking at a similar picture.

What does this add up to in the long term? Because that's the important question when considering whether various plans to preserve the lakes would be "worth it."

The existing dams were built by the Shakers using 19th century technology and lasted more than 150 years. Over a period lasting close to the lifespan of the existing dams, the approximate total loss in tax revenues (in today's dollars) for Cleveland Heights and Shaker Heights combined would be:

$1.5 million per city per year, times 2 cities, times 150 years, equals:

$450 million!

I know, that probably sounds crazy. I never would have guessed the result would look like that. I knew before I went down this road that it would be a big number, but I didn't think it would be nearly that big. All I did, though, was simple addition and multiplication using real world property values, real world tax rates, and data from peer-reviewed literature on the effects on home values of being near lakes. I double and triple checked my math to make sure I didn't mess up somewhere.

And remember, I made assumptions trying to err on the side of being conservative. I can't guarantee that the real number would be that large, but if it would be smaller, it's not likely to be by much. And it could easily end up being higher than my estimate.

It's also, of course, true that many other factors can and will change over such a long time period. $450 million is a very rough estimate based on current conditions. It could go up or down. The important thing is not the exact number, but simply the fact that it's a very large number, many times larger than the cost to the cities would be to preserve the lakes, especially in a shared private/public funding scenario.

Plus, this is just looking at the direct effects on property tax revenues. It's unlikely those would be the only effects. It's easy to imagine there would be a cascade of downstream effects that would only amplify the losses.

Imagine that the lakes go away, and some people who live near the lakes decide they no longer want to live in the area because of the void left by the removed lakes, so they move and try to sell their houses. But they have a hard time selling their houses, because a fancy old house that was built near a beautiful lake suddenly isn't nearly as attractive a property when that lake no longer exists.

Talk to people who don't live here about Cleveland Heights, and one of the most common things you'll hear is, "There's no freeway access!"

I, personally, find the lack of nearby freeways a perk of where I live, not a drawback, but the average person doesn't see it that way.  When I hear something like this, though, I always like to respond, "Yeah, we have these beautiful lakes here, and in the 1960s there was a plan to build a freeway through them but residents organized and stopped the plan." It's a good way to illustrate the tradeoffs between convenient freeway access and having other desirable features in a community. And when people spend time here and get to enjoy the lakes, they'll see that yeah, having a freeway would not be worth losing such beautiful parks.

Now imagine a future where I would instead have to say, "Yeah, we had these beautiful lakes, and residents organized to stop a freeway from being built through them. But then 60 years later we got rid of the lakes anyway." How is that going to look? 

Our cities being less desirable places to live and having a harder time attracting residents would have a negative impact on local businesses that are already running on razor thin margins in today's economy. If this led to some businesses going under that otherwise could have stayed afloat, that would have an additional negative impact on the desirability of the surrounding community.

A $1.5 million annual reduction in property tax revenue per city would especially have a negative impact on the schools, and would also impact the cities' ability to provide essential services and to maintain things like, well, parks (funny, that). This would also have a negative impact on the desirability of the cities.

Decreased desirability leads to decreased property values leads to decreased tax revenue leads to various negative effects that result in further decreased desirability. See where this is headed?

Am I completely certain that all these things would happen? No. Do I think it would be wise to take the risk of finding out? Also no.

From what I gather, the emerging consensus among the powers that be seems to be completely getting rid of Horseshoe Lake and replacing the 17 acre Lower Lake with a 10-12 acre "water feature" that's disconnected from the brook.

Getting rid of one of the lakes would not have as huge an impact on property values and tax revenues as getting rid of both, but it would still have a large impact. These numbers suggest that the cities urgently need to reconsider letting the Sewer District use our valuable historic parkland for a project that will remove value from that land and from the land surrounding it. Not only that, the cities themselves are set to contribute $7 million to a project that will make the cities poorer in the long run. What if that money instead went toward a project that preserved Horseshoe Lake in some form and thus preserved its value to the community?

As for Lower Lake and the currently hypothetical water feature, it's important to realize that not all lakes (or water features) are created equal. If, for instance, the water feature doesn't preserve the wonderful natural feel of the current park - if it's surrounded by concrete, and construction requires cutting down a bunch of mature trees - then people won't like it nearly as much, and there will still be a substantial loss of value. If that's what the water feature would look like, then we need to thoroughly consider options for restoring the dam and preserving the lake in some form that wouldn't diminish the surrounding natural environment. These alternate plans should be put together by someone independent of the Sewer District.

On the other hand, if we can preserve the lakes in a way that enhances their value to the community - say, for instance, by allowing kayaking on Lower Lake more than just one day out of the year - then the opposite effect would likely happen, and property values and tax revenues would rise.

A question that is often asked when the lakes are discussed is, can we afford to save them?

This is a question that we can't even begin to answer until we review alternate proposals for preserving the lakes made by someone other than the Sewer District, someone working with the explicit goal of preserving the lakes, and then we aggressively seek out shared private/public funding options for the plans. It's imperative that we do this.

I think that a much more important question is, can we afford not to save the lakes?

The evidence I reviewed strongly suggests that the answer is no. The only way to find out for sure, though, is to go forward with getting rid of them. And then, if it turns out that all that evidence is indeed correct, it will be too late to reverse our mistake. And we'll be looking at, in total, hundreds of millions of dollars in lost revenues for our cities in the years to come.

Is that a gamble we should take?

A final thought: this analysis is merely an attempt to provide support for and to put a numeric value on an idea. The idea is that the lakes make our community a more desirable place to live, and their removal would make it a less desirable place to live. That idea is not just my opinion; rather, it's supported by an enormous amount of empirical evidence. And if the lakes go away, all that lost tax revenue will only be the most directly quantifiable part of what we'll lose. There are so many other tangible and intangible things that the people who live here would lose if the lakes cease to exist.

The question that should be foremost in the minds of everyone with the ability to influence these decisions is this: do we really, really, want to carry out a plan that will permanently make our community a less desirable place to live?

I know what my answer is.

About the author: I (Jeff McManus) have spent countless hours of my life around the lakes and all other parts of Doan Brook going back to my days as a CWRU cross country runner starting in 2001. I have a PhD in Biology from CWRU and work in research at my alma mater. I've lived in Cleveland Heights since 2012 and the brook and lakes are a large part of what attracted me to living here.

Footnote on number of houses and property value estimation: The method I used was to go on the Zillow website and:

1. Look at houses in a six block area that formed a representative sample ranging from lake-adjacent to nearly 1 km from a lake, 

2. Manually count the houses and add their estimated values, and then 

3. Extrapolate using the ratio of the total land area in that sample to the total area of all land with houses in Cleveland Heights within 1 km of the lakes.

For a sanity check, I also compared my extrapolated number of houses in that area to the total number of houses and total area of Cleveland Heights, and saw that my numbers made sense.

These numbers are not completely accurate, but they're in the right ballpark, and that's all we need for our purposes.