The Water Premium

Why do we pay so much for ‘a view’?

“On the beach, you can live in bliss.” —Dennis Wilson of The Beach Boys

In 2003, when our daughter Grayce was only eighteen months old, my wife, Dana, and I took her on a 112-day trek, 1,200 miles on foot, along the coastal trail from Oregon to Mexico. While her memories are certainly faint, she still talks about that trip, and I can see how it has shaped her connection to nature and deepened our father-daughter bond. As we walked the beach, the three of us would pass moms and dads of all creeds and colors chasing laughing toddlers down the sand; young men and women, wet-suited and long-haired, eagerly carrying boards into the waves; hale and hearty elders leaning forward, striding against the wind; thirtysomethings walking different breeds of dog, watching as their pets occasionally dashed into the surf and then came running back; kids of all ages beachcombing or running in and out of the ocean, squealing at the cold waves, splashing their friends. I strolled quietly behind fishers in sweatshirts, standing or sitting in low plastic chairs, rods in hands or stabbed into the sand, lines in the water, buckets of bait by their sides; I detoured around beach towels occupied by sunbathers, eyes closed, luxuriating in doing absolutely nothing at all. And on almost every face I saw happiness—everything from elation to blissful laughter to quiet smiles of inward contentment. I could feel those states reflected in my own as I walked the 1,200-mile boundary of land and ocean.

In 2003, close to the end of my trek along the western coast, I came upon a house for sale. It was right on the beach in Del Mar, California, an upscale community with a small number of homes on the sand. I could see streets and hills crowded with larger houses on bigger lots farther back from the water but with spectacular views of the vast Pacific; this one, however, was tiny: a ramshackle, one-story, 800-square-foot bungalow, with one, maybe two tiny bedrooms, and almost no space between it and the (much) larger homes on either side. By the side of the house facing the beach there was a post, at the top of which was a Plexiglas holder containing information about the property. I opened up the holder and pulled out a flyer. The asking price for this 800-square-foot teardown was $6.3 million.

People want to be by the water and increasingly have been willing to pay more to do it. But why? Why would anyone be willing to pay that much for a sliver of land and a ramshackle house in an upscale, yet not that unusual, small town in California, when they could go five blocks inland, pay half as much for a house with twice the square footage, and walk or ride their bike to the ocean every day?

(In 2013 the estimated value of that same property was $9.3 million—still one of the best deals in the neighborhood.) Why would someone pay $120,000 for a strip of land 1 foot wide and 1,885 feet long between two properties in East Hampton, New York? Why do people in California, North Carolina, Massachusetts, Florida, and communities on rivers like the Mississippi put up with erosion, minimal square footage, the possibility of being wiped out by storm or flood, or the slow, steady undermining of the sand by the ocean tides or river currents? And what are they really paying for?

The story of that one little bungalow on the beach in Del Mar is a demonstration of the value of proximity: people want to see and hear the water from where they eat and sleep—and they are willing to shell out a lot of green to get some blue. Most real estate agents will tell you that “ocean view” is the most valuable phrase in the English language (and, as you’ll see, in almost every other language as well). “Consider real estate in San Francisco,” said Eric Johnson of Sotheby’s Realty. “There are two penthouse apartments in the same building with the same layout, but one faces the city while the other faces the water. The water view property sells for half a million dollars more.”

Even though billions of people live close to water, the supply of waterfront and water view property is limited, and demand is high. Based on that combination of demand and supply and subconscious knowledge that it’s good for you, one of the easiest ways we can measure and quantify the power of our ancient and newer neural maps—that is, the cognitive value of water—is by what people are willing to pay to look at and listen to.

“Happy is he who is awakened by the cool song of the stream, by a real voice of living nature. Each new day has for him the dynamic quality of birth,” wrote French philosopher Gaston Bachelard. Just as neuroscientists, sociologists, psychotherapists, economists, even geneticists are studying the ins and outs of human happiness, so too, ecotherapists, environmental psychologists, evolutionary biologists, and real estate agents are looking at the ways happiness and water intersect. But to begin the discussion we need to clarify the definition of happiness—a question that has intrigued and confounded humans for millennia.

‘Natural’ Happiness

“Sustainable happiness is… found in our relationship with place.” —Richard Louv, The Nature Principle

In 2011 economics and environment researchers George MacKerron and Susana Mourato created a smartphone app called Mappiness to track the subjective well-being levels of almost 22,000 participants in specific environments in the United Kingdom. When people downloaded the free app and agreed to participate in the study, they received signals at random times throughout the day that asked how happy they were in the moment, who they were with, where, and what they were doing. The app then used GPS to track participants’ exact locations. Over 1.1 million responses—the largest number in any such study to date—were received and evaluated. The results? In general, people were happier outdoors in nature than in any kind of urban environment.

While this study is notable for its large number of participants and responses, it only confirms what scientists, psychologists, and philosophers have been saying for several years, decades, and centuries, and what humans know intuitively: where we are affects how we feel. Researchers endeavoring to create a “national well-being index” examined the role of four different kinds of “capital” (human, social, built, and natural) in determining life satisfaction in communities and discovered that—surprise—“people do consider their natural environment surroundings when evaluating their life satisfaction.” In 2012 a pair of studies in Ottawa, Ontario, of nature relatedness and happiness found that among nearly 1,000 participants, connection with nature was “unique” in its ability to predict happiness, even after controlling for other connections (with friends and country, for example). “Taking walks along the Ottawa River—fifteen minutes gives you boosts in vitality and positive emotions,” Trent University psychology professor Elizabeth Nisbet, a coauthor of the study, commented at “Your Brain On Nature,” a discussion hosted by Ecology Ottawa in 2013. Where we choose to spend our time matters to our sense of well-being. According to Italian psychologist Marino Bonaiuto, when there is a good “person-environment fit”—that is, our biological and psychological needs are substantially fulfilled by an environment—we experience greater happiness. In 2005, Catherine O’Brien, associate professor of education at Cape Breton University in Sydney, Nova Scotia, and an expert in sustainable happiness, conducted in conjunction with the Canadian National Center for Bicycling and Walking what she called the Delightful Places Survey, to discover exactly which elements people regarded as necessary for experiencing happiness in their environment. While many survey respondents picked cities such as Vancouver, Seattle, Melbourne, and Bogotá, it was the natural environments—parks, ponds, trees, urban rivers, and waterfronts—in those cities that were considered the most delightful of all.

What was it about nature that made respondents happy? Based on their answers, it was partly the immersiveness of the experience: the sounds of water, wind, birds, or even the silence; the smells of earth, water, flora, fresh air, or seaweed; the restful yet novel sights of gradations of green, blue, red, yellow, orange, or the movement of leaves and water ruffled by wind or the occasional animal or fish; the feel of cool water against a hand or foot; the yielding yet firm sensation of earth or fallen leaves underfoot; or the extra focus needed to step carefully over rock, branch, puddle, or shell.

It’s certainly possible that being in archetypal, recognizable landscapes (like the savannahs or shorelines our distant ancestors sought for safety and sustenance) triggers positive emotions for the adaptative reasons directly related to our survival we discussed earlier. Preliminary fMRI studies by Nik Sawe of Stanford University of the impact of natural landscapes on the brain show that in some people, the sight of inspiring natural landscapes triggers the same reward circuitry as food, sex, and money.

Our happiness outdoors also could be due to active, rather than passive, engagement. Responses in the Mappiness study showed that people were happier pursuing both vigorous (sports, running, exercise, walking, hiking) and lower-energy (bird-watching, gardening, “nature watching”) activities outside than they were with indoor or urban activities. A major 2007 study focusing on the U.K. countryside that tracked 249 participants and summarized ten additional “green exercise” case studies found support for this correlation, concluding that walking, cycling, horse riding, fishing, and canal-boating provided significant improvement in self-esteem and mood for all demographics. But how much of this happiness is due to the natural environment, and how much is due to the fact that these outdoor activities are recreational? When Mappiness researchers controlled for leisure activities, the percentage of people’s increased preferences for being outdoors, in nature, remained the same.

The Mappiness study showed one other interesting statistic: the highest increase in happiness in an outdoor environment occurred when people were near water.

Being in marine and coastal regions added 5.2 percent to a person’s level of happiness: a disparity, study authors noted, “of similar magnitude to, for instance, the difference between attending an exhibition and doing housework.”

Time and time again, researchers have discovered that proximity to water strengthens the positive effects that environment has upon well-being. A 2006 study of people in Ireland found that people living within five kilometers of the coast enjoyed higher life satisfaction, “other things being equal,” and living within two kilometers of the coast strengthened the effect. A University of Essex team that researched outdoor activities in the United Kingdom discovered that while every “green” environment had an effect on both self-esteem and mood, habitats with open water produced a significantly larger degree of improvements in mental well-being. Researchers from the Institute for Hygiene and Public Health at the University of Bonn studied people who walked along promenades by the river in Cologne and Düsseldorf, and found that “water is a strong predictor of preference and positive perceptive experiences in urban environments.” We see this not only through the natural incursions of water into cities, but in the formation of cities themselves—particularly where we want to live.

“Throughout history, people of all cultures have assumed that environment influences behavior. Now modern science is confirming that our actions, thoughts, and feelings are indeed shaped not just by our genes and neurochemistry, history and relationships, but also by our surroundings.” —Winifred Gallagher, The Power of Place

Not too long ago, most waterfront property was undesirable. It was considered dangerous, indefensible, smelly, and good only for commercial enterprises such as fishing, transport, and manufacturing. The most expensive homes were typically located in the center of town, or on the “high street,” well away from the danger of marauders or of the water that residents had polluted and, in so doing, helped incubate a host of deadly (and annoying) bacteria, fungi, rot, mold, pests, and the like. For that matter, an ocean view was desirable only for seeing danger—enemies, pirates, storms, and for some, “sea monsters” perhaps—coming from afar. Today, however, in most industrialized countries waterfront property is incredibly desirable, and communities everywhere are cleaning up their rivers and old manufacturing locales and turning what was polluted, deserted stretches into chic properties, green parkland, and revitalized market space. New York City spent more than $60 million to restore the Bronx River and create parks, walking trails, and bike paths along its length. Downtown riverfronts in Portland, Chicago, Austin, Washington, D.C., and Denver are bustling. San Antonio’s River Walk is the number one tourist attraction in the state of Texas. Monterey’s Cannery Row, so indelibly described by John Steinbeck, no longer reeks of sweat and fish guts, but instead features blocks and blocks of shops, hotels, and restaurants along the shores of Monterey Bay, right next to the renowned Monterey Bay Aquarium.

Riverbanks, beaches, and lakefronts offer a mini-course in economics, culture, and the value of environment. We’ve never been able to calculate the value of water other than by what people are willing to pay to live or vacation by it.

But how we determine the value—experiential, monetary, or otherwise—of being by, in, around, or near the water is a critical question. With over 123 million people in the United Sates living in coastal communities in 2010, what value should we be placing upon access to water and water views?

When you ask people why they like to spend time by water, the usual responses are “It feels good,” “I like looking at it,” and “It makes me happy.” (The most common answer: “I’m not quite sure, that’s a very interesting question!”) When Gordon Jones, owner of Seaside Realty and Seaside Vacation Homes, on the Outer Banks of North Carolina, surveyed thirty-five real estate agents to discover why their clients had bought oceanfront homes, the answers included:

• To hear and fall asleep to the sound of the ocean
• A status symbol
• The pull of the ocean, the serenity and respect
• The ultimate challenge of mother nature
• A good investment/rental income
• Lifestyle
• To watch the sunrises
• The convenience of having the beach at your front door
• Inspiration—people are moved to write, paint, or do whatever they do best
• To see wildlife—pelicans, whales, dolphins, sea turtles, fish

Jones explains that oceanfront lots are ofen referred to as being on the front row—and “who doesn’t want to be on the front row?”

But what exactly is the water premium, and why are so many people willing to pay it? This isn’t a question only for those home-shopping in Del Mar; a version of this premium is added to the bill of every water view restaurant, hotel room, or recreational facility. But because the cognitive benefits of being by the water aren’t named as such on the balance sheets of many communities, economists, lacking a clear way to calculate these nonmarket values (“externalities”), often don’t bother trying. Yet, by reconsidering such premiums in a different context, such qualities can become quantifiable, transformed from invisible to visible, from vaguely understandable to precisely calculated, from fuzzy ideas to cells in a decision matrix. How we think about how we think about water has begun to evolve, Blue Mind style.

What Will You Pay for Your Own Bit of Blue?

There’s something really simple and idyllic about living in a house very close to the water. —Andrea Riseborough

When you think of environments by the water, or you gaze out over an ocean or river or lake from the shore or, better yet, from a window in your home or hotel, you can feel both security and freedom, and a sense of what psychologist Marino Bonaiuto calls a good person-environment fit. In Space and Place: The Perspective of Experience, cultural geographer Yi-Fu Tuan examined how people form attachments to homes, neighborhoods, and environments. He theorized that we feel a sense of security in the places we come to know, and freedom in having enough space to roam; we are attached to one and long for the other. When we were seeking a location for our second Blue Mind Summit, in 2011, I contacted Gordon Jones to ask about booking space on the Outer Banks and to learn more about the importance of psychology in setting real estate values. For Blue Mind 2, he compared ten years’ worth of Multiple Listing Service data on the price of lots located right by the ocean with those that are one, two, three, four, or five lots away from the water, and then with a group of properties that face Currituck, Albemarle, and Roanoke Sounds between the islands and the mainland. (Because the price of a house varies greatly depending upon its size and features, he felt lot sales more accurately approximated the value of a water view.) He found that the average price of an oceanfront lot was $722,608, while a lot just one row back was $420,390, or almost 42 percent less. The next most expensive lots were on the soundfront, selling for $340,747—less than 52 percent of the price of oceanfront but still more valuable than being on the third or fourth row from the ocean. Weekly rental rates for vacation homes follow the same trend.

Appraisers have found that adding water—in the right place, at the right time, of course—contributes to property value more than just about anything else can, alongside square footage and lot size.

In a 1993 study on Emerald Isle, North Carolina, real estate appraisers found that factors such as distance to the water, amount of water frontage, and ocean view were three of the five most important characteristics in determining value in coastal properties.

Globally, water and water views impart a trillion-dollar premium on condos, houses, and all other forms of real estate. In Portland, Oregon, and Seattle, Washington, despite having no storage or basements, chic “floating homes” (formerly known as houseboats) sell for more per square foot than comparable homes on dry land. Think again about that house in Del Mar. The cheaper homes behind it could have had better kitchens, more bathrooms, more room for guests, better wiring, and so on—and it still wouldn’t matter. And it isn’t just the ocean: a 2001 analysis of data for properties on the Great Lakes showed that lake views added up to an 89.9 percent premium to a house. Studies of properties in the United States in 2002–2003 reveal water premiums of anywhere between 4 to 12 percent in Massachusetts, to 46 percent in Avalon, New Jersey, to 147 percent for oceanfront views in Point Roberts, Washington. In Singapore, an unobstructed ocean view adds 15 percent to the price of a unit in a high-rise building. In 2013 in Dubai, prices for properties in the Palm Jumeirah, a development built on an artificial archipelago extending into the Persian Gulf, ranged from $580,000 for one-bedroom apartments to $5.4 million for five-bedroom villas. In the United Kingdom in 2013, real estate company Knight Frank compared the price of a waterfront home with a comparable residence five miles inland and discovered that a sea view added anywhere from 26 to 66 percent to the price; views of rivers were even moredesirable, producing an 82 percent price increase. A 2000 Netherlands landscape and urban planning study discovered that water views increased the value of a property by 8 to 28 percent.

Close to the water, even mobile homes can carry a hefty price tag. Paradise Cove, for example, is home to a mobile home park, right on the sand, that Hollywood celebrities call “the hippest neighborhood in Malibu,” where double-wide trailers sell for $900,000 to $2.5 million. Santa Cruz features another such park, right on the water, that boasts what one researcher in Pennsylvania State University’s Insurance and Real Estate Department called “the world’s most expensive mobile homes.” “An exponentially increasing premium has typically been found, and in the past several decades these price gradients have become steeper,” noted a report by the Appraisal Institute. “There are reasons to believe that will not change in the foreseeable future.” World-class sunsets, waves, and a marine lab at your doorstep each morning: What premium would you pay for that? And would you regret it, just as you might regret that old toy?

Excerpted from Blue Mind: The Surprising Science That Shows How Being Near, In, On, or Under Water Can Make You Happier, Healthier, More Connected, and Better at What You Do by Wallace J. Nichols. In stores July 22, 2014.

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