Real estate pricing research provides evidence that properties potentially exposed to perceived or actual risks may experience price impacts. Looking Under the Hood reviews publications that illustrate the theoretical, methodological, and data challenges faced by scholars and practitioners studying detrimental conditions and their impacts on property values.
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Brownfield properties have often been the subject of questions from real estate professionals due to their complexity. Marie Howland, a professor of urban planning at the University of Maryland[1] researched the impacts of environmental contamination, from various sources, on commercial and industrial land prices in Baltimore, Maryland. Heavy industrial operations have been active within the Carroll Camden District area since approximately the 1890s. The potential sources of contamination stemmed from the following industries: paint and varnish manufacturers, household product manufacturers, chemical product manufacturers, engine shops, metal foundries, glass makers, brickworks, coal plants, lumberyards, and rubber cement milling. The research suggested that past industrial uses in the Carroll Camden District, and associated contamination, have been a hurdle for redevelopment.
The sales dataset spanned from March 2, 1990, to November 2, 2000. These sales were obtained from property tax records, local government agencies, and data vendors [2] Approximately 161 sales were analyzed as part of this study. The Environmental Protection Agency, Sanborn Fire Insurance Atlases, and the Maryland Department of the Environment were the sources of information about the environmental contamination within the area of concern. The real estate sales data and environmental information were utilized in the hedonic regression model. Sites with historical operations, as mentioned above, were analyzed to observe contamination impacts on property prices, if any.
The results of the hedonic analysis showed that land with market awareness of documented contamination sold at an average 67% discount compared to unimpaired prices. Properties adjacent to a contamination source experienced a 42% diminution to land price. The study suggested that unconfirmed, presumed environmental source sites can also have impacted property prices. In this study, suspected contamination source sites had property prices 65% lower than unimpaired land prices.
[1] Hennighausen, Hannah & Suter, Jordan. (2020). Flood Risk Perception in the Housing Market and the Impact of a Major Flood Event. Land Economics. 96. 366-383.
[2] CoStar and MacKenzie Commercial Real Estate Services