The Effect Of Fracking On House Prices

Ascontroversy over the Government’s plans over the expansion of fracking exploration and possible future extraction, we consider what the effect of fracking in your area will have on the value of your house.

What is fracking?

Fracking (aka Hydraulic fracturing) is a technique used to recover oil and gas from shale rock. The process involves drilling deep down into the earth before injecting has done in high-pressure sand, water and chemicals into the drilled wells pressure forcing the release of the gas from within the rock.

Although fracking has been highly successful in the United States of America, it was introduced into this country in its present form in 2011 when fracking was use of the coasts of Blackpool. The fracking operation at Blackpool caused 2 small earthquakes and as a result fracking activity was ceased in the UK whilst the Government looked into its safety. A recent independent report on fracking gave the green light to resume a fracking program but subject to tighter controls.

Controversy over fracking

Although currently in the exploratory phase, fracking has become a controversial subject within the UK as the Government is being accused of being less than honest with the electorate over the effects of fracking on the economy and particularly on the housing market. In March 2014 the first draft of a government approach on shale gas entitled “Shale Gas: Rural Economy Impacts publicly released with large portions of the report redacted or removed. A whole section looking at the effect of drilling on house prices had 3 large parts redacted, with a published section referring to a 2010 report about Texas which found that houses near fracking sites had the values decreased by 3% to 14%. The report was published by the Department for Environment, Food and Rural Affairs shortly after two thirds of England had been opened to a round of bidding for government shale gas drilling licences.

The effect of fracking on local house prices

Despite the Government’s avoidance of the issue, some areas in the UK which have been publicly earmarked for exploration (most of the sites are located in Lancashire but also include Lingfield in Surrey, Cowden in Kent and bulk in West Sussex) are experiencing effects similar to that experienced by areas earmarked for HS2 with house values within these areas are dropping by up to 20%. The housing market within these areas has slowed down considerably, with transactions falling through as soon as potential buyers are made aware of the fact that the area has been chosen as one of the exploration areas for shale gas. Estate agents in these areas are warning sellers not to price their properties too high as they will need to sell them quickly before shale gas exploration begins. There have also been instances of mortgage lenders withdrawing mortgage offfers when they become aware that the area in which the property is situated is in or very close to the chosen shale gas exploration areas.

To appease the residents in areas chosen for the exploration for shale gas, the Government has suggested a payment of £100,000 of “community benefits” to be shared amongst the community. Such compensation pales into insignificance when homeowners cannot sell their properties at all.

 

The Royal Society of Chartered Surveyors (RICS) has stated that unconventional oil and gas sites would have to be taken into account in future when valuing a property and assessing a mortgage application with the RICS spokesperson, Rebecca Hunt saying “it is likely that in time fracking activity will eventually come under the necessary “due diligence” during the investigation of title and an subsequent valuation of the property, in a similar way to “previous mining activity” currently applies to house valuations”. As well as the question of the mortgageability of a property it is likely that buildings insurance will also be a consideration. Informal enquiries by residents in the areas that are proposed for fracking exploration, have found that it may be difficult to acquire buildings insurance which will cover damage caused as a result of fracking or related activities.

Can homeowners Fracking from taking place under their properties?

Under the Petroleum Act 1998 shale gas belongs to the Crown and not the landowner. A government licence (a Petroleum Exploration and Development Licence) is required in order to extract shale gas. However, having obtained a licence from the Government the company wishing to carry out the exploration and extraction of shale gas still have to apply to the Local Authority for planning permission. Where the landowner and the licence holder are not the same, the company wishing to carry out extra the exploration and extraction may have to obtain consent to enter onto the land and set up their operation on the land; compensation may also be payable to the landowner for any disruption caused. However, if access to the land is refused by a landowner, the licence holder can apply through the Secretary of State and the courts to be granted access. They Government is proposing to make changes to the access rights for licence holders to make it easier for them to drill and carry out exploration operations for shale gas.

Other than opposing the planning applications submitted by the licence holders, there would appear to be very little that a homeowner can do to prevent shale gas exploration in their locality.

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