Seismic risk and house prices: Evidence from earthquake fault zoning

Publication date: Available online 16 February 2019Source: Regional Science and Urban EconomicsAuthor(s): Singh RuchiAbstractIn 1972, the Alquist-Priolo Zoning Act provided for the publication of earthquake fault maps in California. I exploit revisions in these official maps over time to estimate the rate of capitalization of seismic risk into property values using a difference-in-differences framework. Using geographically consistent data from 1970 to 2010 at the census tract level, I find that on average property values decline by 6.6 percent after the delineation of the fault zone, while rents decline by around 3.3 percent. I also examine the risk gradient and heterogeneity in willingness to pay using individual sales transactions, assessors' records, and publicly available mortgage data for the City of Los Angeles. The analysis of micro transactions data from 1997 to 2016 reveals that, on average, house prices increase by 1.8 percent for a one-mile increase in distance from the fault zone. The evidence also indicates that holding income and gender constant, Blacks and Hispanics are less willing than Whites to trade other forms of consumption to avoid earthquake risk.

Source: Regional Science and Urban Economics - February 17, 2019 Category: Science Source Type: research