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Earthquake-risk salience and housing prices: Evidence from California

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  • Fekrazad, Amir

Abstract

I investigate the hypothesis that earthquake-risk salience increases in a housing market in response to the news of out-of-the-market earthquakes, which subsequently leads to an increase in price differential between low-risk and high-risk areas within the market. Using data on 20 years of worldwide earthquake occurrences and California housing prices, I find that both home value index and median listing price decrease by approximately 6% and 3% respectively in California zip codes with high seismic hazard (relative to those with low seismic hazard) after high-casualty earthquakes occur outside of California. Additionally, I show that (a) the higher an earthquake’s death toll, the larger the increase in the price differential; (b) an earthquake in Europe has a significantly larger impact on California’s price differential than a similarly deadly earthquake in another region; and (c) the effects are transient and dissipate one month after the earthquake occurs. The results are robust to various specifications and multiple robustness checks.

Suggested Citation

  • Fekrazad, Amir, 2019. "Earthquake-risk salience and housing prices: Evidence from California," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 78(C), pages 104-113.
    • Handle: RePEc:eee:soceco:v:78:y:2019:i:c:p:104-113
    DOI: 10.1016/j.socec.2019.01.001
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    References listed on IDEAS

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    Cited by:

    1. Huang, Yi, 2021. "Salience of hazard disclosure and house prices: Evidence from Christchurch, New Zealand," Regional Science and Urban Economics, Elsevier, vol. 88(C).
    2. Mizuki Kawabata & Michio Naoi & Shohei Yasuda, 2022. "Earthquake risk reduction and residential land prices in Tokyo," Journal of Spatial Econometrics, Springer, vol. 3(1), pages 1-21, December.
    3. Wesley Burnett, J. & Mothorpe, Christopher, 2021. "Human-induced earthquakes, risk salience, and housing values," Resource and Energy Economics, Elsevier, vol. 63(C).
    4. Gregor Dorfleitner & Lars Hornuf & Martina Weber, 2023. "Paralyzed by shock: the portfolio formation behavior of peer-to-business lending investors," Review of Managerial Science, Springer, vol. 17(3), pages 1037-1073, April.

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    More about this item

    Keywords

    Hedonic pricing; Natural disasters; Risk salience; Earthquakes; Housing market;
    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
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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