Markets for Real Estate and Water Rights
As a water economist in the process of buying a home, it has been interesting observing the differences between the real estate market and the water markets I study. A water right is often defined by its source, location of diversion, location and type of use, and a priority date (water in the western US is allocated first-in-time, first-in-right, so older dates have priority in times of drought). A home is defined by a daunting (at least to a first-time buyer) number of attributes: location, number of bathrooms, lot size, type of insulation, school district, view, etc., etc., etc.
Despite a longer and more subjective set of attributes used to value real estate, economists know more about the real estate market than the market for water rights. One reason for this is that the market for real estate is much larger than for water. According to the best available database of water transactions, we calculated that from 1987-2008 approximately $4.3 billion was spent purchasing water in the western US (see paper or access dataset). In July of this year alone, $40.68 billion was spent in the western US in home purchases (calculations based on data from the National Association of Realtors).
However, size is not the only reason for the relative paucity of data on water markets. The prices of real estate sales are made public in most states, while the prices of water right sales are not. In Utah, home sale prices are not public, which seems inefficient, but realtors do maintain databases, so when I look at a home with a realtor, I can access its sale price history, and the price history of similar homes. It is straightforward to answer questions like: How much are other three bed/two bath homes in this neighborhood going for? Robust markets provide three functions: price discovery, liquidity, and the reduction of transaction costs. Even though homes are complicated assets with high transaction costs, housing markets provide all three functions. Water markets do not.
Water, like real estate, is titled and transfers are regulated by the state. I suspect that in the past water rights were of too little value to make the types of public disclosure rules that exist for real estate worthwhile. But in many areas in the west facing growing water scarcity, this may no longer be true. When a family makes a decision to upgrade to a larger home, they can quickly and easily figure out what it will cost and if they can afford it. If buyers of water for people, farms, and the environment could find market values as quickly and easily, the debate over water allocation might move away from assigning blame and towards determining feasibility and cost.