Groundwater Overuse in Central Valley Causes Home Value Decline

The University of California, Riverside has discovered that excessive groundwater extraction in the Central Valley of Northern California is not only causing land to sink but also leading to a significant decrease in home values. Groundwater pumping, in excess of natural replenishment, has led to an increase in subsidence and the economic impact on homeowners due to sinking land. 

A study of home sales transactions in the San Joaquin Valley, a significant agricultural area in southern California's Central Valley region, was conducted and will soon result in an analysis of almost 200,000 such transactions across eight counties, according to Land Economics. The study linked satellite radar data on land subsidence with home price records and discovered a drop in property values from sinking land to 2.4% to 5.8% when collected over long distances. This meant losses between $6,689 and $16,165 per home. It is estimated that the overall impact on the region was around $1.87 billion in lost housing value. 

The research was conducted by Mehdi Nemati, assistant professor of environmental economics and policy at UC Riverside, Ariel Dinar, distinguished professor emeritus at the same university, and hydrologist Michelle Sneed, who had previously worked with the U.S. government. Geological Survey. Nemati and Dinar are affiliated with UC Riverside's School of Public Policy. 

Land subsidence is the result of depleting underground water reserves at a faster rate than natural replenishment. Why does this happen? Clay and silt layers in the earth are compacted when groundwater is removed, causing a permanent drop below the surface level of the land. The future water retention capacity of aquifers is reduced by compaction, leading to less drought resilience in certain areas. 

Despite its significant agricultural production of almonds, grapes and tomatoes, as well as citrus fruits, over-pumping is rampant in the San Joaquin Valley, particularly during prolonged dry spells. With the decrease in surface water availability, groundwater is being increasingly utilized by urban and agricultural consumers to accelerate subsidence. 

Besides the decline in housing prices, the research highlights the overall impact on infrastructure and the environment. The area has already experienced damage to irrigation canals, roads, and bridges due to subsidence.... This also alters natural water flows to spring and stream systems, thereby disrupting ecosystems.' Also, once underground aquifers are compacted, the lost storage capacity is irreversible.[A]. 

Using fixed-effects and repeat-sales models, the researchers applied advanced statistical equipment to measure subsidence in housing prices. The study was conducted for this purpose. These techniques enabled them to separate the consequences of land sinking from other market drivers. Hence, The figures demonstrated the most significant drops in property value during periods of more severe subsidence. A more educated community and a relatively new concern of land subsidence showed the most marked negative economic impact, suggesting that buyer behaviour may be better judged with increased awareness. 

Potential buyers are concerned about structural damage, increased maintenance costs, and insurance risks due to the depreciation of homes. In impacted neighbourhoods, it may be challenging for homeowners to build equity or sell their properties at a fair price. It is evident from the results that land subsidence goes beyond mere environmental factors and instead has far-reaching economic and social impacts, extending beyond just water management and agriculture. 

The authors of the study assert that these findings provide compelling evidence for policy reforms. By assessing the financial impact of groundwater overuse, they propose that regulators and stakeholders will have a more favorable understanding of resource utilization and infrastructure investment. 

SGMA, which was introduced by California in 2014, mandates local agencies to balance groundwater use by the 2040s. The effects of land subsidence have been intensifying, while progress under SGMA has been slow. Managing water sustainability is complicated by climate change, rising temperatures and longer droughts. 

The researchers recommend that local and state agencies increase their monitoring of subsidence through the use of satellites or on the ground. The information provided can guide decisions on mitigation, promoting compliance with groundwater laws, and pinpointing suitable sites for restoration. They also point out that better public information about the subsidence risks could influence development and land use planning in the area. 

The drought-prone Central Valley is reminiscent of an incident that highlights the importance of groundwater in other areas affected by drought. Why? These studies provide evidence that water policy must consider the interrelationships between its impact on housing, infrastructure and community stability. Inadequate extraction poses a threat to both environmental systems and the well-being of residents. 

Adopting more sustainable water practices would be a priority, given the economic cost that is nearly $2 billion lost in housing value. The absence of action from environmental leaders can have long-term financial repercussions for homeowners, as opposed to those who are directly involved in managing utilities and farming. Its findings highlight the importance of using strong, data-driven thinking to manage water resources in a way that not only enhances agricultural productivity but also supports community well-being. 

Source: 
Presented by the University of California - Riverside. In the forthcoming article "The San Joaquin Valley's Evidence for Housing Sale Values: A Study on the Impact of Land Subsidence on Housing Value Changes," Mehdi Nemati, Ariel Dinar, and Michelle Smong are reviewed in Land Economics (2025). DOI: 10.3368/le.102.1.092324-0083R.