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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Irwin [1] measured the property value impacts of lead risk zones on single-family homes in Baltimore County, Maryland. Their study relied on hedonic output results from a triple difference in differences in hedonic model specification. For further context, in 2004, Maryland implemented a new classification system for high-lead-risk areas. In this mandate, the zip codes with the highest risks were delineated, and this information was communicated to the public. Out of the 86 zip codes within Baltimore County, 25 were classified as being at risk in the year 2000, with an additional 10 zip codes being included in this category in 2004. This risk zone information was inputted into the author’s hedonic model, with other controls, to analyze the impact of lead risk, if any.
The author’s dataset of residential property sales was obtained from the Corelogic and included more than 180,000 transactions that spanned from 2001 to 2010. As part of the analysis, the author forms a subset of dwellings located on the fringes of zip codes designated at risk in 2004 and share the same school district. These homes constitute a group with equivalent public benefits, including similar school district quality and proximity to parks and amenities. Subsequently, he identified the cluster of residences in these regions, which were sold after the risk classification and were built before the prohibition of lead-based paint. This specific cluster is regarded as the "treatment" group.
Irwin’s hedonic output presented evidence that elevated lead risk had a significant negative impact on property values. In 2005, the year following the implementation of the new policy for lead-risk classification, homes in the high lead-risk zones sold for approximately 6.7% less as compared to homes outside of a zone. This estimate increased to 7.9% and 8.9% in the subsequent years.
[1] Irwin, Nicholas B. “Legacies of Lead: Estimating Home Buyer Response to Potential Lead Exposure.” Land economics 96, no. 2 (2020): 171–187.