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The effects of the BP Deepwater Horizon oil spill on housing markets

Javier Cano-Urbina (), Christopher M. Clapp and Kevin Willardsen

Journal of Housing Economics, 2019, vol. 43, issue C, 131-156

Abstract: When the Deepwater Horizon oil rig exploded in 2010, it resulted in the largest off-shore oil spill in United States history. Economic theory dictates that the oil damage and restitution payments that resulted from the spill should be capitalized into property values. To measure the extent of this capitalization, we create a novel dataset by linking surveys of the location and severity of oil observed along over 4,300 miles of the Gulf Coast to measures of local housing market outcomes. We then perform hedonic-style analysis to determine the net effects of the spill on affected real estate markets. In doing so, we provide the first plausibly causal estimates of the effect of the spill on affected housing markets throughout the Gulf region. Identification comes from a triple-difference framework that exploits the random nature of both the spill and the spatial distribution of oil that affected coastal communities, as well as controls for the confounding effects of the housing market crash. Results suggest that on net, the BP oil spill caused a significant decline in home prices of between 4% and 8% that persisted until at least 2015. This implies housing markets capitalized $3.8 billion to $5.0 billion in spill damage inclusive of clean-up and restitution effects. These results are robust to numerous alternative definitions of treatment and control groups.

Keywords: Environmental damage; Oil spill; Housing markets; Capitalization; Hedonic analysis; Triple-difference estimator (search for similar items in EconPapers)
JEL-codes: Q40 Q51 Q53 R11 R31 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:jhouse:v:43:y:2019:i:c:p:131-156