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 illustrating the theoretical, methodological, and data challenges scholars and practitioners face studying detrimental conditions and their effects on property values.
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Hansen et al. [1] considered the effects of pipeline proximity on surrounding single-family house values in Bellingham, Washington. The analysis had two hedonic hypothesis tests. First, the authors constructed a model and quantified the impacts of proximity to the Trans Mountain pipeline, a crude oil pipeline with no history of explosions. Second, the authors measured the potential effects of the Olympic pipeline, a refined petroleum pipeline that had an explosion on June 10, 1999. For further context, the explosion on the Olympic pipeline caused more than 200,000 gallons of gasoline to be released into Whatcom Creek, and one death was reported.
This area of Washington has undergone significant development since the pipelines were constructed. This development resulted in many sales of surrounding single-family residential properties nearby each pipeline. The author gathered approximately 3,765 sales from 1994 to 2004 from the Whatcom County Assessor’s office. The data were constrained to one mile concentrically from each pipeline for both hypothesis tests. In the Olympic pipeline analysis, before and after the explosion was delineated in the hedonic model specification.
Before the explosion, residential properties had no statistically significant impacts from pipeline proximity for both the Trans Mountain and Olympic pipelines. After the explosion, the Olympic pipeline provided a statistically significant discount for single-family properties located near the pipeline. For homes 50 feet, 100 feet, 200 feet, and 1,000 feet away from the pipeline, the indicated discounts were 4.6%, 2.3%, 1.2%, and 0.2%, respectively. Upon further analysis, the authors observed that the Trans Mountain pipeline had no statistically significant impact after the explosion.
[1] Hansen, J. L., E. D. Benson, and D. A. Hagen. “Environmental Hazards and Residential Property Values: Evidence from a Major Pipeline Event.” Land Economics 82, no. 4 (2006): 529–41.