Final answer:
Environmental issues like water pollution from fracking can significantly affect real estate values by contributing to health risks and negative perceptions, which may lead to a decrease in property values. Economists must balance environmental impacts with economic benefits when forming policies, with real estate values often reflecting this balance.
Step-by-step explanation:
An environmental issue that can significantly affect real estate values is water pollution stemming from industrial activities, such as fracking. Fracking is a method used to extract natural gas, which has been linked to potential environmental degradation, including contaminated groundwater and increased seismic activity. Such concerns can lead to a decrease in real estate values due to the associated health risks and negative perceptions of living near such activities.
Real estate values are sensitive to environment-related risks. For example, properties located near areas with heavy traffic congestion and high levels of air pollution might also experience a drop in value. This is because environmental quality is a significant factor considered by potential homebuyers. Likewise, real estate near zones prone to accidents or areas with a history of environmental hazards may bear the brunt of depreciating values.
When economists factor in environmental issues into policy, they must consider the opportunity cost of economic growth versus the potential damage to the environment. Deciding on policies like the introduction of pollution charges or marketable permits requires a balance between the short-term economic benefits and long-term environmental sustainability. If the environmental damage is severe, the decrease in property values could outweigh the benefits anticipated from industrial development.