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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The article by Koo and Liang [1] explores the impact of wildfires on property values, focusing on the bushfire-prone area (BPA) in Australia, a region with a high risk of wildfires due to its eucalyptus-centric vegetation system and climatic conditions. Over recent years, wildfires have escalated globally, posing significant threats to both human life and the environment. This study aims to understand how wildfires affect property prices, considering the salience of wildfire risk following the exceptional wildfire seasons of 2015 and 2016. Authors (Cuculiza et al., 2021) highlight the importance of considering migration motivations, such as seeking natural environmental amenities, in understanding how wildfire risk is capitalized in the real estate market.
The research utilizes a comprehensive database of residential real estate transactions in Victoria, Australia, collected from the Australian Urban Research Infrastructure Network (AURIN). The dataset includes transaction prices, dates, and property attributes, with a focus on properties within a 300-meter buffer zone on both sides of the BPA boundary. Geographic Information System (GIS) data is employed to precisely delineate the BPA and analyze property transactions. Employing a spatial difference-in-differences (DID) approach, the study investigates the impact of wildfire risk on housing prices, while also considering the moderating role of natural environmental amenities in mitigating this impact.
The findings reveal that properties within the BPA are generally valued higher than those outside, in line with previous literature emphasizing the positive impact of environmental amenities on real estate prices (Cuculiza et al., 2021). However, following major wildfire events, properties within the BPA experience price decreases of approximately 0.9%–1.7% compared to properties outside the BPA, with the negative impact being significant in the first two years post-event and diminishing thereafter. Additionally, properties within the BPA with higher natural environmental amenities exhibit greater resilience to wildfire risk, indicating the importance of considering environmental factors in wildfire risk research within the housing market context.
[1] Koo, K. M., & Liang, J. (2022). A view to die for? Housing value, wildfire risk, and environmental amenities. Journal of Environmental Management, 321(1).