Summary: The increase in property value due to undergrounding utility cables far exceeds the cost, even for those whose oceanward view is not impacted. For property owners whose private connections are already underground the ROI is even greater. There is no need to pay upfront.
Cost-benefit discussions surrounding moving utility cables underground are complex, but a portion of these are summed up by the real estate market as differences in property values. Distilling these increases can be difficult, but some studies have been done, and ball-park estimates are available.
The details of these studies do not match Hermosa’s situation exactly, but we can begin to form an idea of how undergrounding will affect our property values:
- 45% – Land (i.e. vacant lots) adjacent to high-voltage transmission lines sell for 45% less than equivalent lots not located near transmission lines.
- 12.5% – Peter Larsen of the Lawrence Berkeley National Laboratory estimates property value increases of 2.5% to 22.5% with undergrounding.
- 2.9% – Ben McNair estimates Canberra’s real estate values increase 2.9% with undergrounding.
The first study concerns vacant land, so we can reduce the total increase in value quite a bit. However, the land in Hermosa’s sand section accounts for a major part of property price. I would estimate that the cost of land generally accounts for more than 50% of the total property cost, and far more for properties bearing smaller houses.
For the second and third studies, the considered regions are inland (or at least no significant ocean views) and far less sensitive to aesthetic considerations. We can use Larsen’s 12.5% as a conservative estimate. For a house of $2M, an increase of 12.5% is $250,000.
The total cost of the undergrounding project should be around $1.5M. That would be a cost of $25,000 on average for each of the 60 owners. Some properties already have their private connection underground. But even if the $1.5M does not include the conversion of a property’s private connection, and we must add an average of $15K to a property’s undergrounding cost, the cost per property is still only $40K. The ROI is over 6X. For properties whose private connection is already underground the ROI is 10X.
Let’s take a drastic case where the undergrounding project costs $2.5M and the increase in property value is only 2.9%. The ROI is still 38%! (58K/42K)
Property owners on Manhattan Avenue may argue that their properties are not affected by the aesthetic issues of overhead cables, but keep in mind that those property values are greatly affected by the the values that surround them.
Also, please note that undergrounding costs need not necessarily be paid upfront. If a property owner elects not to pay upfront, the city will finance the owner’s cost through the issuance of bonds payable in annual installments and amortized over 15-20 years.
Although financial considerations may comprise the largest part of many owners’ decisions, undergrounding is also beneficial for other reasons, including admittedly less probable fire safety and electrocution safety reasons.
Anyway, all of this is talk at this point. We may as well get an estimate from the city so that we have some real numbers to discuss. So sign the (no obligation) letter of interest.
If you have any pertinent data please share!
Edit: A couple hours after I posted this article I received an analysis (forwarded from an owner in our district who is not interested in undergrounding) from someone who is familiar with the undergrounding value proposition in Manhattan Beach.