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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Kilpatrick [1] conducted a study examining the effects of potential drinking water contamination on Santa Clara County, California, property values. The investigation commenced in response to media reports concerning perchlorate contamination in drinking water wells. In January 2003, specific well testing was initiated off-site, focusing on the San Martin neighborhood near the Olin Corporation facility. The Santa Clara Valley Water District's well-testing map identified the Olin Corporation Facility as a potential party responsible for this perchlorate contamination. It is worth noting that, during the study, perchlorates, the concerning constituent, was not subjected to regulation for drinking water.
The author adopted the repeat sales approach in this analysis to evaluate the diminution in property values. The author acquired data from 83 repeat sales recorded in the Multiple Listing Service (MLS) database, covering residential sales between 1999 and 2004. The methodology involved examining homes sold multiple times with minimal changes in their characteristics between sales. The extent of any change in value could be determined by comparing the observed percentage change in resale value with the percentage change for the unimpaired index value.
The primary purpose of the repeat sales analysis was to quantify the impact on property values before and after the public became aware of the contamination issue. The findings revealed that the unregulated perchlorate contamination provided significant property value diminution to residential property values near the Olin Corporation Facility in California. The repeat sales approach demonstrated a property value diminution (PVD) of 21.82% for homes not affected directly by the contamination source.
Previous studies on environmental contamination have predominantly examined the before and after impacts using sales comparison or regression analysis. However, the author believed these models may not be well-suited to assess the effects of a specific event, such as a contamination announcement. In contrast, this study adopted a repeat-sales index approach to specifically capture the changes in value trends immediately following a contamination announcement. By doing so, the author opined that he effectively isolates the direct impacts of the event itself while controlling for external factors.
[1] John A. Kilpatrick. “Application of Repeat Sales Analysis to Determine the Impact of a Contamination Event.” Journal of housing research 15, no. 2 (2006): 129–142.]