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Before a Fall: Impacts of Earthquake Regulation and Building Codes on the Commercial Building Market

Author

Listed:
  • Levente Timar

    (Motu Economic and Public Policy Research)

  • Arthur Grimes

    (Motu Economic and Public Policy Research)

  • Richard Fabling

    (Independent Researcher)

Abstract

We test whether a major earthquake in one city (Christchurch, New Zealand) affects the prices of earthquake-prone commercial buildings in a city (Wellington) that was unaffected by the disaster. In particular, we test whether the official public declaration of a building as being earthquake-prone (with a corresponding requirement to remediate the building to minimum earthquake code requirements) has an effect on price over and above that experienced by similarly earthquake-prone (but not yet declared) buildings. We distinguish the latter by isolating sales of those buildings that are subsequently declared to be earthquake-prone. We find that in the CBD, the price discount that accompanies an official earthquake-prone declaration averages 45% whereas there is no observable discount on buildings that are subsequently declared earthquake-prone. Consistent with our theoretical model that anticipates forced sale of some officially declared earthquake-prone buildings, the probability of sale of officially declared earthquake-prone buildings rose markedly after the Christchurch earthquakes. Our results therefore show that officially declared earthquake-prone status has a considerable impact on the commercial property market that is separate from the effects of being earthquake-prone but where the building has not (yet) officially received that status.

Suggested Citation

  • Levente Timar & Arthur Grimes & Richard Fabling, 2015. "Before a Fall: Impacts of Earthquake Regulation and Building Codes on the Commercial Building Market," Working Papers 15_19, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:15_19
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    References listed on IDEAS

    as
    1. Levente Timar & Arthur Grimes & Richard Fabling, 2014. "That Sinking Feeling: The Changing Price of Disaster Risk Following an Earthquake," Working Papers 14_13, Motu Economic and Public Policy Research.
    2. James C. Murdoch & Harinder Singh & Mark Thayer, 1993. "The Impact of Natural Hazards on Housing Values: The Loma Prieta Earthquake," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(2), pages 167-184, June.
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    More about this item

    Keywords

    Earthquake-prone buildings; commercial property prices; forced property sale;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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