Impacts of Earthquake Regulation and Building Codes on the Commercial Building Market

Levente Timar, Arthur Grimes and Richard Fabling

No 290581, Motu Working Papers from Motu Economic and Public Policy Research

Abstract: We test whether a major earthquake in one city (Christchurch, New Zealand) affects the prices of earthquake-prone commercial buildings in a city (Wellington) that was unaffected by the disaster. In particular, we test whether the official public declaration of a building as being earthquake-prone (with a corresponding requirement to remediate the building to minimum earthquake code requirements) has an effect on price over and above that experienced by similarly earthquake-prone (but not yet declared) buildings. We distinguish the latter by isolating sales of those buildings that are subsequently declared to be earthquake-prone. We find that in the CBD, the price discount that accompanies an official earthquake-prone declaration averages 45% whereas there is no observable discount on buildings that are subsequently declared earthquake-prone. Consistent with our theoretical model that anticipates forced sale of some officially declared earthquake-prone buildings, the probability of sale of officially declared earthquake-prone buildings rose markedly after the Christchurch earthquakes. Our results therefore show that officially declared earthquake-prone status has a considerable impact on the commercial property market that is separate from the effects of being earthquake-prone but where the building has not (yet) officially received that status.

Keywords: Public; Economics (search for similar items in EconPapers)
Pages: 26
Date: 2015-10
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Persistent link: https://EconPapers.repec.org/RePEc:ags:motuwp:290581

DOI: 10.22004/ag.econ.290581

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