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Living with Wildfire: The Impact of Historic Fires on Property Values in Kelowna, BC

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Listed:
  • Zhen Xu
  • G. Cornelis van Kooten

Abstract

Wildfires in British Columbia result not only in large direct damages, but also significant indirect losses associated with lost amenity values and the risk to life and property. The indirect values can potentially be measured by changes in property values. In this study, we assume that the threat of wildfire affects property values by shifting homebuyers’ willingness-to-pay. Using ten years of data from the City of Kelowna, we develop a hedonic pricing model that employs spatial autoregression to determine the marginal effects that wildfire occurrence, average fire size, and the location have on a residential property’s aggregate sales value ($) and on its per unit price ($/m2). Results indicate that historical wildfire occurrence has a statistically significant impact on property values, but that fire size has a more significant impact than frequency. It also appears that homebuyers discount the impact of fire on their purchase if large fires occurred nearby – as if fires do not strike twice in the same region. Finally, the evidence suggests that amenities available in the wildland urban interface add more value to residential properties than that is lost as a result of wildfire risk.

Suggested Citation

  • Zhen Xu & G. Cornelis van Kooten, 2013. "Living with Wildfire: The Impact of Historic Fires on Property Values in Kelowna, BC," Working Papers 2013-05, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
  • Handle: RePEc:rep:wpaper:2013-05
    as

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    File URL: http://web.uvic.ca/~repa/publications/REPA%20working%20papers/WorkingPaper2013-05.pdf
    File Function: Final version, 2013
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    References listed on IDEAS

    as
    1. Loomis, John, 2004. "Do nearby forest fires cause a reduction in residential property values?," Journal of Forest Economics, Elsevier, vol. 10(3), pages 149-157, November.
    2. Geoffrey H. Donovan & Patricia A. Champ & David T. Butry, 2007. "Wildfire Risk and Housing Prices: A Case Study from Colorado Springs," Land Economics, University of Wisconsin Press, vol. 83(2), pages 217-233.
    3. Charlotte Ham & Patricia A. Champ & John B. Loomis & Robin M. Reich, 2012. "Accounting for Heterogeneity of Public Lands in Hedonic Property Models," Land Economics, University of Wisconsin Press, vol. 88(3), pages 444-456.
    4. Mansfield, Carol & Pattanayak, Subhrendu K. & McDow, William & McDonald, Robert & Halpin, Patrick, 2005. "Shades of Green: Measuring the value of urban forests in the housing market," Journal of Forest Economics, Elsevier, vol. 11(3), pages 177-199, December.
    5. Stetler, Kyle M. & Venn, Tyron J. & Calkin, David E., 2010. "The effects of wildfire and environmental amenities on property values in northwest Montana, USA," Ecological Economics, Elsevier, vol. 69(11), pages 2233-2243, September.
    6. Mueller, Julie M. & Loomis, John B., 2010. "Bayesians in Space: Using Bayesian Methods to Inform Choice of Spatial Weights Matrix in Hedonic Property Analyses," The Review of Regional Studies, Southern Regional Science Association, vol. 40(3), pages 245-255.
    7. Julie Mueller & John Loomis & Armando González-Cabán, 2009. "Do Repeated Wildfires Change Homebuyers’ Demand for Homes in High-Risk Areas? A Hedonic Analysis of the Short and Long-Term Effects of Repeated Wildfires on House Prices in Southern California," The Journal of Real Estate Finance and Economics, Springer, vol. 38(2), pages 155-172, February.
    8. J. Barkley Rosser, 2009. "Introduction," Chapters,in: Handbook of Research on Complexity, chapter 1 Edward Elgar Publishing.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Wildfire; Property Value; Hedonic Pricing Method; Spatial Autocorrelation;

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • 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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