US property: how fracking can cut house prices – and raise them

If you want to see what a 21st century-style gold rush does to a local housing market then visit Williston, North Dakota. In a 2000 census it had 12,512 people and 5,255 households, most living and working on farms. By 2010 the figures had risen to 14,716 and 6,180 households. Now the population is 38,000, according to the local council.

The reason for the rapid increase is that Williston sits on the Bakken formation shale deposit. In 2008 work began on a vertical and horizontal drilling process called hydraulic fracturing – or fracking – to pump water, sand and chemicals two miles below ground to crack rock and release oil and gas. Since then, fracking has transformed North Dakota. In the year to October the state’s economy has grown 9.8 per cent and personal income has risen 13.3 per cent, while unemployment is only 3 per cent.

Still, the experience of North Dakota suggests that public uncertainty over the process and its effect on local communities may be hard to placate anywhere in the world.

City-data.com, which analyses house sales, says the average house or condominium in Williston in 2009 cost $101,906. By 2011, the average was $122,000 – still below the norm for North Dakota. “But since then prices have doubled or in some cases tripled,” says estate agent Arlene Hickel, of Bekk’s Realty in Williston.

Owners with land now used for drilling or serving as service areas for “drill-pads” – multiple bore holes – have signed confidentiality deals with fracking companies after leasing or selling their land, which in some cases can extend for hundreds of acres. Other owners have remained in situ, renting out their rooms or land to the expanding fracking workforce.

A four-bedroom detached house built in 1979 is on sale in Williston for $730,000, three times the average price for a like-for-like property in a non-fracking area of North Dakota.

There are new homes being built but “too few”, says Hickel, who claims the biggest boom is in “man camps”: factory-built homes and dormitories. The sector is attracting international investors seeking high yields for relatively modest capital outlays.

Property Horizons, a British developer, has now set up premises and recruited permanent staff in Williston. It offers “high-end mini-hotels” – prefabricated buildings with five two-bed rooms. Investors pay $54,950 per room and the company predicts “projected rental yields of 49 per cent per year”.

As with past mineral rushes – when communities were transformed by the discovery of coal, metals, clay or oil – fracking investors have to weigh risks against opportunities.

Researchers at Duke University in North Carolina studied the effect of fracking on the prices of 19,000 homes in Pennsylvania, which has a growing shale industry. They looked at the proximity to drill sites, environmental and pollution disturbances, and water supply – water contamination is a controversial and fiercely disputed risk associated with fracking.

The study found those homes that used local groundwater for drinking (which is common in rural areas of the US) lost 19.7 per cent of their value up to 1.25 miles away from drill sites. Homes with piped-in water did not lose value and in some cases even appreciated by up to 11 per cent because of the potential income from leasing land to fracking operators.

More damage may be done by the as-yet unknown long-term problems associated with shale exploration. “When we sell a home there are sometimes a few so-called ‘exceptions’ – unusual circumstances where insurance firms won’t provide cover. But one home near a fracking well recently had 47 exceptions, all related to gas and oil,” says Adam Cox, of Zip Realty in Morrison, Colorado, another fracking area. He says concern about the side effects is “stigmatising and blighting homes” with prices for some properties falling up to 20 per cent.

Nationwide Mutual Insurance Company, a major US domestic insurer, says it will no longer cover any fracking-related damages.

Now this controversial process may be spreading to housing markets in other countries as fracking expands. Property Horizons is considering building homes at drill sites in Nigeria, Australia, South Africa and Venezuela. Recently, the chairman of the UK government’s climate change advisory body said that the country should press ahead with fracking. With a denser population and fewer large rural areas than the US, fracking operator Cuadrilla has identified nine potential sites in the UK. One is Balcombe in West Sussex, an area of southern England with above-average house prices. In Dorset, French company Perenco is already fracking for oil two miles from Sandbanks, where homes regularly sell for £5m-plus. In Lancashire, where Cuadrilla carried out a consultation exercise earlier this year, John Johnson, of estate agency Farrell Heyworth, warned of “owners saying they want to get out before prices start dropping”.

In Williston, even property professionals admit that the impact of fracking is not restricted to house prices and rental yields. “Williston was a quiet farming community, but now it’s always busy with so many people and a lot of crime. You don’t leave doors unlocked any more,” says Hickel, of Bekk’s Realty. “So, although it’s great that our houses are worth more, is Williston a nicer place to live now? Well, no, I can’t really say that it is.”

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Buying guide

● Fracking sites can cover a wide area, involving drill rigs and pipe networks for chemicals and water

● Property values can be cut due to traffic and noise problems, and water and air pollution

● However, prices can also rise if demand for homes in the area increases, such as from fracking operators looking to lease properties

● Opponents claim fracking may create minor earthquakes, contaminate tap water and release carcinogenic compounds into the air

● Protests are common – an anti-fracking ‘camp’ has just been set up in Greater Manchester

● Fracking creates many high-paid engineering jobs with knock-on demand for homes