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

Abstract

Unlike most hedonic studies that analyze the effects of a one-time event, this paper analyzes the effects of forest fires that are several years apart in a small geographical area. We find that repeated forest fires cause house prices to decrease for houses located near the fires. We test and reject the hypothesis that the house price reduction from one fire is equal to the house price reduction from a second fire. The first fire reduces house prices by about 10%, while the second fire reduces house prices by nearly 23%, a statistically significant difference. The pattern of these results are robust to several alternative econometric specifications.

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Notes

  1. 1.

    See Boyle and Kiel (2001) for a comprehensive survey of hedonic studies.

  2. 2.

    Our timing of adjustment is similar to the adjustment used in Loomis and Feldman (2003).

  3. 3.

    We have data on the number of bedrooms and number of bathrooms for each house. However, these values were highly correlated with the square footage. We estimated specifications including the additional structural characteristics and found that the estimated coefficients on the After Fire and Since Fire variables were robust to changes in the structural characteristics included. The results of the additional estimations are available from the author upon request.

  4. 4.

    We know only the most recent sale date of a house.

  5. 5.

    For example, there were several observations with sale amounts of 0, 8 27, or 99999999.

  6. 6.

    No houses were lost to fire in our fire area.

  7. 7.

    Due to the small number of houses that experience a third fire (only 34 houses), we do not analyze the effect of a third fire.

  8. 8.

    We thank Shil Niyogi of Nobel Systems for his assistance with the Los Angeles County parcel data.

  9. 9.

    We are very grateful to Nate Peterson, our GIS expert, for his contributions to this project.

  10. 10.

    The annual Housing Price Index was obtained from the Bureau of Labor Statistics website http://data.bls.gov/cgi-bin/srgate) and typing in the series id CUURA421SAH.

  11. 11.

    The website is http://data.bls.gov/cgi-bin/srgate, with the series id LAUST06000003.

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Acknowledgements

We would like to acknowledge Patty Champ for her valuable comments, and David Mushinski for his suggestions on our econometric model. Funding provided by the USDA Forest Service and Colorado State University (Agricultural Experiment Station Regional Research Project W1133). The comments of an anonymous reviewer improved the breadth of analysis of this paper.

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Correspondence to John Loomis.

Appendices

Appendix Table A1: Comparing Distance Cut-offs a,b

Table 6 Comparing distance cut-offs

Appendix Table A2: Comparing Linear, Quadratic, and Double-Log Specifications of the Time Since Fire Variables a,b

Table 7 Comparing linear, quadratic, and double-log specifications of the time since fire variablesa,b

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Mueller, J., Loomis, J. & González-Cabán, A. 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. J Real Estate Finance Econ 38, 155–172 (2009). https://doi.org/10.1007/s11146-007-9083-1

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Keywords

  • Hedonic property method
  • Forest fires
  • Implicit prices
  • Willingness to pay