by Ellen Liberman
OCEANFRONT. New construction designed with architectural grace & quality craftsmanship affording panoramic views of Pt. Judith Refuge and Block Island from every room. Sited on rare, gated 1.3-acre lot within walking distance of Roger Wheeler Beach. List price $2,990,000
The Multiple Listing Service (MLS) cannot do justice to 77 Stanton Avenue. The cedar-shingled, 3,464-square-foot, contemporary Victorian rises above the modest Capes that dominate the Sand Hill Cove neighborhood in Narragansett to meet the ultramarine of the Atlantic and the cerulean of the sky. Words fail to capture the restless shushing of the breakers and the salty tang delivered by the offshore breezes. To the north, a motley mantel of orange-blue-pink umbrellas shade the sunbathers on Roger Wheeler Beach. Due south, Block Island crests over the waterline. And the stony arms of the Point Judith breakwaters seem to draw the gaze forward into the endless blue.
Can one really put a price on that?
Realtors, tax assessors, scholars, insurers, hard-nosed home sellers, and dreamy homebuyers have certainly tried. Jim Houle, a Portsmouth-based appraiser since 1973, still remembers the very first rule of real estate he learned in his very first certification course:
“When it comes to dealing with waterfront property, you can forget every rule you ever learned,” he recalled. “For the most part, in real estate appraisal work, you can cut through individual and subjective and personal responses by accumulating sufficient amounts of data, and it comes out to a fairly empirical conclusion. But, when you deal with waterfront property, it is so subjective and so individual and so very personal, there really is not an ability to distill it down to a single set of parameters that gives you a clean answer to the question: What is the value of a water view?”
The housing sector is a powerful economic engine, with residential investment and housing-related spending at its peak comprising up to 18 percent of the nation’s gross domestic product. Real estate in proximity to the water shifts it into high gear. At the peak of the market in the 1980s and 1990s, real estate researchers determined that the premium for the best water views ranged from 60 to 100 percent, and 120 to 200 percent for waterfront. According to a more recent market analysis by the real estate company Zillow, the median value of waterfront properties compared to that of all homes rose from 64 percent in 1994 to 116 percent today.
Rhode Island is famously blessed with 384 miles of coastline. And, in early August, the MLS identified 3,948 properties with the word “water” in the description, ranging from a two-bedroom, 529-square-foot shoebox in Galilee for $89,000 to a $19 million mansion on Newport’s Ocean Avenue. Determining the premium associated with the ability to install a dock, or step out onto a sandy beach, or even spy a scrap of waterscape from a third-floor window is as critical for municipal budgets as it is for individual wealth.
Earl D. Benson, a professor of finance at Western Washington University who has co-written several papers on the topic, says that developing mathematical models that can quantify the value of a water view by its quality is a more recent development in real estate research, but one that has interest beyond scholarly circles.
“It’s a very big issue for people who have views that get destroyed and some cities even have ordinances that if there is something that harms someone’s view, they have to be compensated,” he says. “So it’s really important to lots of segments of people—from city government to developers to homeowners to lawyers.”
In practice, the market determines the current value of a water view. Realtors, who help home sellers set the price, say it is more art than science.
“You have to look at comparable properties. You also have to feel it in your gut, and have the experience to decipher what type of waterfront property it really is,” says Melanie Delman, president of Lila Delman Real Estate International, which has been selling high-end waterfront property in Rhode Island since 1964. “How rare is it? Do you hear sounds? Do you see a sunset? What are the components that make it special?”
Municipal tax assessors take their cues from the data.
“I don’t look at the water, I look at what someone else paid for that waterfront, and that’s how I decide the value of the property,” says Allan Booth, a tax assessor since 1984 who currently works for the city of Newport and the town of Narragansett. “The market tells an appraiser and an assessor what the values are in an area. Waterfront and waterview amenities certainly enhance the tax base.”
Depending on how much coastline a municipality has in its portfolio and its share of the total tax base, the impact can range from a blip on the bottom line to the properties that carry the budget. Warwick, for example, has 40,822 parcels of stand-alone residential properties (excluding condominiums) representing $10.5 billion in assessed value. Waterfront and waterview homes are valued at $8.79 million—representing only 8.3 percent of the total. Further, the city’s coastal properties represent each extreme in the range of values.
“When people think of Warwick, they think of malls and the airport, but the city actually has 39 miles of coastline—more coastline than most communities,” says Warwick Mayor Scott Avedisian. “But, the same body of water separates the highest tax bill for a home on Warwick Neck to the lowest tax bill for a home in Oakland Beach.”
For Charlestown, with a $2.36 billion tax base and very little commercial or industrial real estate, its water view is its wealth. Bisected by Route 1, the town’s southern half has 22,000 acres encompassing Atlantic-facing sandy barrier beaches, bordered inland by Ninigret and Quonochontaug salt ponds; its wooded northern half comprises about 35,000 taxable acres. Yet with fewer parcels, the south side’s total assessment is $1.56 billion, versus $814 million on the north side of Route 1. Not only is Charlestown’s seaward land considerably more valuable, its occupants—retirees and second-homeowners—tend to use fewer town services, as their children went to school elsewhere, and their homes may be unoccupied in the winter.
While the town’s entire tax base has tripled since 1993 due to the increase in residential land values, the south side of town makes a disproportionate contribution to the town revenues, says Tax Assessor Kenneth Swain.
“Without the waterfront, Charlestown would be like Hopkinton, because of the weight on residential versus commercial and industrial land,” he says. “Our taxes would be significantly higher.”
WATER, WATER EVERYWHERE. Views on all sides from this spacious contemporary. Sunset, bridge, and bay views. Open floor plan. Great room with gas stove and vaulted ceiling. Living and dining open to deck. Walk to bay. Mooring possible or marina nearby. List Price $535,000
Built in 1997, the two-bedroom, three-story at 1236 Anthony Road in Portsmouth’s Common Fence Point literally sits between two different bodies of water.
The neighborhood occupies Aquidneck Island’s northernmost tip, a finger of land pointing to the upper reaches of Mount Hope Bay. From the stairway landing, you can look eastward over the Sakonnet River to Tiverton and Little Compton. Across the sweep of the back deck, sailboats make a lazy passage along the Bristol shoreline from the Mount Hope Bridge. Chris West, a real estate agent with Gustave White Sotheby’s International Realty, waits patiently in the sauna of a late July afternoon for a buyer to be amazed by the 360 degrees of sea and sky.
Laurie McGowan, a Newport resident who traded the water view of her last home in Portsmouth’s Black Point neighborhood for the convenience of an in-town rental, doesn’t miss an opportunity to find a way back.
“The value of a water view for us—it’s an escape from my husband’s busy job. There’s something so calming about the water, very peaceful—meditative,” she says. But McGowan, who got her real estate license to sell her former home, wants the right house, in the right location, at the right price.
The current listing price of $535,000 is a step down from the original $595,000 list price and a steep drop from the $800,000 the current owners paid for it in 2004. Benson’s most recent research on the value of water views, a 2013 analysis of 25 years of housing sales data for homes in Bellingham, Washington, showed that the premium for waterview properties fluctuates with the booms and busts of the entire real estate market.
West’s experience has told her the same thing: “Even if you look in recent times—the market went crazy in ’05, ’06, ’07, and then in ’08 it just stopped and real estate went way, way down,” she says. “We are just now getting back to those prices—but waterfront gets there first.”
Nonetheless, 1236 Anthony has been a hard sell, with only one low-ball offer in five months on the market. Water views also come with liabilities, West acknowledges, and one of the biggest in recent years is the cost of flood insurance. Currently, about 5.5 million homes are covered by the National Flood Insurance Program, established in 1968 to give homeowners an opportunity to protect coastal properties, after the private market abandoned that segment of the business. The federal government has been heavily subsidizing flood insurance premiums for existing homes ever since, and flood insurance is a requirement for any mortgagee in a flood-prone area with a federally-backed mortgage.
In 2012, after payouts from 2005 Hurricanes Katrina and Rita pushed the program $24 billion into the red, Congress passed the Biggert-Waters Flood Insurance Reform and Modernization Act, which increased insurance premiums 25 percent a year, until they reached full-risk rates for businesses, second homes, and properties with repetitive losses. The changes only affected about 20 percent of policy holders, but their rage was enough to force Congress to hastily pass a measure in 2014 to delay the premium increases.
The National Flood Insurance Program is due to be reauthorized in 2017, and the Federal Emergency Management Agency, which manages it, has been studying ways to balance its financial sustainability with affordability. Two reports recently issued by the National Academy of Sciences’ Committee on the Affordability of National Flood Insurance Program Premiums attest to how difficult that will be. To keep policies affordable, the program must increase the number of purchasers, which are currently concentrated in Special Flood Hazard Areas in Louisiana, Texas, and Florida. Any program reforms would have to define affordability and determine who is eligible for assistance, and in what form.
“I think there’s no way this program can thrive unless the affordability issue is addressed,” says Howard Kunreuther, a public policy professor, co-director of the Risk Management and Decision Processes Center at the University of Pennsylvania’s Wharton School, and a member of the committee.
He has proposed that insurance premiums reflect risk, in a program that provides vouchers for those who implement cost-effective flood mitigation.
“If homeowners are required to do that and receive a loan to spread the mitigation cost over the life of the mortgage, it will reduce the homeowner’s cost as well as the federal government’s voucher expenditures. Everyone will be better off in the long run.”
In the meantime, 1236 Anthony’s liabilities have cast a pall over its panoramic views.
“I’m having a very difficult time selling the house,” West says. “The taxes on top of the flood insurance are affecting how someone could afford a $535,000 house. The program only gives them $250,000 in flood insurance. With a $5,000 flood insurance and $7,300 in tax, that’s another $1,000 a month on top of your mortgage and utilities to carry the house.”
WATERVIEW COTTAGE. Fabulous unobstructed waterviews from most rooms. Balcony off master bedroom. Close to marina, bike path, and parks. Enjoy waterfront living year round. Subject to probate court approval. List price: $319,000
Hard to believe now, but there was a time when living on the water was considered a folly. A man who made his living fishing might require a house with a dock. Otherwise, many houses turned their backs on the views—no sliders, Palladian windows, or soaring towers to dominate Narragansett Bay. James Rhodes, who built Roselawn on Bellevue Avenue in 1854, was roundly chided by a friend for the recklessness of constructing a home so near to the ocean. He wrote: “I never thought you’d be such a damned fool and I expect to hear any day that you’ve been drowned.” Assessor Allan Booth likes to tell the story of the Newport contractor who, 30 years ago, turned down a waterfront parcel in Jamestown from a customer in lieu of a $1,800 cash balance on a job. The land sold a couple of years ago for $1.8 million.
And yet, from the late 1800s on, Rhode Islanders were busy colonizing their shores. Hotels with dining halls and religious summer camps gave way to beach communities. Even if your summer cottage was just a “shore tent”—five rooms and a porch—you could still enjoy a Vanderbilt’s view. Some of those properties still abide as trophy second or third vacation homes, but many simply became the suburbs. Barrington, with four rivers braided within the town borders, attracted developers, who, beginning in the 1850s, sliced some of the old farms and coast into truffle-thin plats to meet the demand for small houses.
The house at 37 Shore Drive was built in 1920, but the Bay Spring neighborhood began as a Victorian summer community. It crams in 1,500 square feet of living space on a 2,000 square-foot lot. Architecturally undistinguished, the house looks down-on-its-heels. But from the crudely constructed front porch, it commands a magnificent panorama of the Providence River, northward from Bullock’s Cove, all the way down to the Newport Bridge.
“People make sacrifices to live near the water,” says Realtor Ian Barnacle of Residential Properties. “A lot of houses on the water are smaller than people might want, and you have to edit your life to fit it. But, people buy the location above everything because you can change a house, but you can’t change a spot.”
But even the affordable spots are threatened. In East Providence, waterfront property owners revolted over assessments that leapt as high as 50 percent since the city’s last revaluation in 2012. The City Council responded by voting to ask the General Assembly for authority to cap assessments at a maximum of 15 percent over a previous year—a move that would force the city’s other taxpayers to essentially subsidize property owners with more valuable real estate.
Houle expects the upward pressure on the value of a water view to continue. The demand was created by
a confluence of sociological and economic influences in the late 19th and 20th centuries: access to the shore via trains, trolleys, and then automobiles; the emerging concept of a vacation; and the prosperity of the post-World War II era that gave a middle-class family the means to buy the available waterfront and waterview homes.
“A lot was changing by the 1980s; the supply was shrinking. You had the rising power of the Coastal Resources Management Council interested in further reducing the ability to use waterfront—requirements for set-backs and septic systems,” he says. “As the supply got eaten up, the demand increased.” In this century, climate change may reduce the supply even further.
“It will be economically unfeasible to keep bailing people out, and the regulators are going to have to force people back from the water.”
And yet, we value our water views enough to keep pushing forward. Carey Bell pops out of the house next door to assess a stranger’s interest in 37 Shore Drive. Fifteen years ago, she moved from her in-town home to the cozy confines of cottage living, cheek-by-jowl with an eclectic mix of neighbors. She enthused about the house’s front row seat to a real working waterfront, with the constant parade of tankers headed for the Port of Providence.
“This is Barrington’s most hidden treasure,” she says. “I don’t think you ever get tired of living on the water.”