Template-Type: ReDIF-Paper 1.0
Author-Name: Levente Timar
Author-X-Name-First: Levente
Author-X-Name-Last: Timar
Author-Email: levente.timar@motu.org.nz
Author-Workplace-Name: Motu Economic and Public Policy Research
Author-Name: Arthur Grimes
Author-X-Name-First: Arthur
Author-X-Name-Last: Grimes
Author-Email: arthur.grimes@motu.org.nz
Author-Workplace-Name: Motu Economic and Public Policy Research
Author-Name: Richard Fabling
Author-X-Name-First: Richard
Author-X-Name-Last: Fabling
Author-Email: richard.fabling@xtra.co.nz
Author-Workplace-Name: Independent Researcher
Title: Before a Fall: Impacts of Earthquake Regulation and Building Codes on the Commercial Building Market
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.
Length: 26 pages
Creation-Date: 2015-11
File-URL: https://motu-www.motu.org.nz/wpapers/15_19.pdf
Number: 15_19
Classification-JEL: Q54, R33, R38
Keywords: Earthquake-prone buildings, commercial property prices, forced property sale
Handle: RePEc:mtu:wpaper:15_19