Fracking and the UK property market

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Even the term “fracking” sends shivers down the spines of many people looking to conserve the environment. While extremely popular in the USA, fracking has yet to really take off across Europe although the UK government has given approval for explanatory drilling and hydraulic fracturing (fracking) in areas such as Lancashire and North Yorkshire. While there have been a number of explanatory drilling exercises across the UK there has only been one fracking exercise.

Impact on property markets

A report by the London School of Economics digs deeper into the subject of fracking and how this may or may not impact the local property market. When you bear in mind how commonplace this is across the USA, and how many of the general public have made millions, it does seem just a matter of time before it hits Europe and the UK. There are already fracking companies quoted on the stock market and while difficult to value at this moment in time it won’t take long before investors wake up to their potential.

In the areas where drilling has taken place the London School of Economics found little or no impact on house prices across England and Wales. This may surprise some people but the background of the first fracking exercise in the UK probably won’t.

Danger to property

If you follow the UK property market you have probably seen the doomsday headlines regarding fracking and the nightmare scenarios many have witnessed in the USA. In the only place where fracking has taken place (injecting fluids at high pressure to release gas), the north-west of England, there has been an average fall in house prices of 5%. This may not seem too dramatic but we are still in the early days of fracking and already it seems to be having an impact on property prices.

It seems as though this drop in property prices may have been prompted by two earthquakes in 2011 which were linked, correctly or incorrectly, to fracking. It will be some time before experts are able to clarify the situation beyond reasonable doubt although in the meantime the concern and confusion will not help local property markets.

Compensation

There are a number of potential compensation packages being discussed in relation to fracking and the local community. One idea is to award local communities £100,000 in exchange for exploration access plus 1% of all revenues it creates. The UK government is already considering a “shale gas wealth fund” where 10% of all revenues would be paid and payments of up to £10 million per site paid out to affected communities.

It will be interesting to see whether talk of compensation and a percentage of revenues is enough to offset local concerns about the impact on property prices. At the end of the day money does talk but large fracking operations could have a material impact upon local property markets. While we have to take the nightmare stories from the USA with a pinch of salt, there is certainly more research required at best and at worst these payments could be seen as a possible bribe. Despite some politicians initially attempting to thwart growth in the UK fracking industry they often seem to go quiet when the potential tax revenues are discussed.

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