Valuing the Barmah-Millewa Forest and in stream river flows: A spatial heteroskedasticity and autocorrelation consistent (SHAC) approach

•Estimated the value of river flows capitalized in property prices•Applied new spatial heteroskedasticity and autocorrelation consistent (SHAC) approach•Found that the marginal benefit of flow on property price is non-linear•The threshold point for flow to have negative effect on price is 21 GL/day

This paper uses spatial heteroskedasticity and autocorrelation consistent (SHAC) hedonic property price analysis of house sales during 2000-2011 to estimate the marginal value of in stream flows and proximity to an iconic freshwater ecosystem, the Barmah-Millewa Forest (BMF) in Australia's Murray-Darling Basin. We establish: (1) that proximity to the BMF is a statistically significant and positive determinant of nearby house prices in Victoria and New South Wales, i.e. for an average property worth $199,000 that is 10 km away from the BMF, moving 1 km closer will increase sales price by $2000; and (2) a non-linear relationship between in stream flow and sales price which is suggestive of homebuyer preferences for flow that is neither low (i.e. drought flows) nor high (i.e. flood flows). The results provide estimates of the benefits of in stream flow that could be used to inform freshwater ecosystem restoration policy in the basin and are suggestive of regional benefits that accrue to homeowners living near key freshwater-dependent ecosystems in the basin.