The Pricing of Lake Lots
PETER F. COLWELL
University of Illinois at Urbana Champaign, Urbana, IL, USA
CAROLYN A. DEHRING
University of Georgia, Athens, GA, USA
This article reveals aspects of lakefront property pricing especially with respect to lot frontage and depth. A
clearer understanding of how these lot dimensions affect price should be of interest to those engaged in lake
development, land use control, valuation, and marketing. A data set with eighty observations of vacant Lake
Michigan residential properties sales is used. The unique geography of northwest Michigan provides an
opportunity to tackle empirical issues associated with zoning when zoning is correlated with lot attributes, such
as lot topography.
Key Words: lakefront property values, frontage and depth, recreational land values, hedonic pricing
The frontage of lake lots is the principal focus of attention for regulators, practitioners,
and market participants in the market for lake lots. The key zoning policy variable for
lake lots is the minimum frontage. This constraint is used, however imperfectly, to
control the intensity of lake and beach use as well as to provide sufﬁcient separation
between wells and septic systems (Spalatro and Provencher, 2001).
This constraint is
also a device that can be used to exclude the less-than-wealthy. Practitioners who
estimate the value of lake lots for the purposes of transactions and assessment almost
always focus on frontage as the most important attribute (Boyle and Taylor, 2001).
Owners of lake lots covet frontage, because it guarantees a breadth of lake view,
especially if owners choose to locate their home or cottage back from the lake farther
than the minimum setback deﬁned by zoning or covenant (Benson et al., 1998).
One of the most durable valuation rules-of-thumb is that lake lots are priced by
frontage alone. It is nearly always implied that this pricing relationship is linear and
proportional. See, for example, Hearn (1999). This may or may not be substantially true.
It cannot be precisely true. If it were, then developers of lake lots would just sell one
very wide lot. This is because there would be no value increment associated with
subdivision under linear prices, yet there are incremental costs associated with
subdivision. Most frequently we observe lake lots with wide frontage being subdivided
and relatively narrow frontage being sold. As a result, we might expect the true pricing
relationship to be at least slightly concave, making it possible for the value increment
associated with subdivision to cover the cost associated with subdivision; that is, making
concave prices an equilibrium condition. On the other hand, there are examples of lake
The Journal of Real Estate Finance and Economics, 30:3, 267–283, 2005
2005 Springer Science + Business Media, Inc. Manufactured in The Netherlands.