The effect of time on the impact of a natural hazard on property values

Abstract

Collective participant opinion has a fundamental effect on the function of the real estate market and property values. Market participant opinion, perception and tastes all help colour the market, but also add to its complexity. When market participants act in a manner that appears irrational to property analysts, market analysis becomes more difficult, and thus the prediction of market value becomes less reliable. This apparent irrational behaviour could result from inadequacies in market participants' collective knowledge about issues affecting a sector of the market. Many such issues relate to risk.

This research was undertaken primarily to determine whether market participants' perception of the level of risk associated with an at-risk locality changes over time. A measure of the change in perception was attempted by way of statistical analysis of sale price changes over time following the occurrence of a disaster, where the risk of a similar disaster occurring again, remains. It was expected that sale price changes would reflect changes in perception if changes in other variables could be controlled for.

Properties in the vicinity of the Abbotsford landslide disaster, which occurred in Dunedin, New Zealand in 1979 and those in a control sample provided the focus for this research. Sale price changes between the two localities were compared over time.

A factorial Analysis of Variance (ANOVA) model was adopted to measure the relationships identified above. Use of this methodology, although not widely supported by the literature focusing on studies of the effects of like hazards on property values, but has been widely adopted in other discipline areas.

The results confirm that sale prices in the Abbotsford locality did converge with those in the control locality over time. This finding contributes to the current body of knowledge linking property hazards and property values. Future research could focus on extending the study time frame to measure market reaction to other pre- and post-disaster trigger points.