Seismic risk and house prices: Evidence from earthquake fault zoning

• Published in: Regional science and urban economics 2019-03, Vol.75, p.187-209
• Main Author: Singh, Ruchi
• Format: Article
• Language: English
• Subjects: Assessors; Censuses; Consumption; Delineation; Earthquake damage; Earthquakes; Environmental risk; Fault lines; Heterogeneity; Housing prices; Prices; Property values; Real estate; Rents; Sales; Seismic activity; Seismic engineering; Transactions; Willingness to pay; Zoning
• ISSN: 0166-0462; 1879-2308
• DOI: 10.1016/j.regsciurbeco.2019.02.001

In 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. •I estimate the rate of capitalization of seismic risk into property values by exploiting changes in earthquake fault maps.•I estimate a difference-in-differences model using census tract data for California for the 1970-2010 period.•I find that, after the delineation of the fault zone, property values decline by 6.6%, and rents decline by 3.3%.•Transaction data for Los Angeles show a 1.8% increase in house prices for a one-mile increase in distance from a fault.•I find substantial heterogeneity in willingness to pay to avoid seismic risk by race, gender, and income.