15 Aug

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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Instances of underground storage tank (UST) leaks, a frequent occurrence, have captured significant attention in real estate research. In an investigation by Guignet et al. [1], the impacts of notable UST leaks on the valuation of residential properties were analyzed. The study primarily focused on 17 noteworthy cases of UST leaks across the United States. These leaks came to public knowledge at various time points spanning from 1985 to 2013. The authors emphasized the distinctive nature of their hedonic analysis, which concentrated on UST storage tank releases encompassing several states (CA, CO, FL, MD, NC, NJ, NY, RI, VA, and VT). This research claimed a pioneering endeavor in this field. The specific contamination constituent varied from one site to another. Interestingly, it was observed that approximately 53% of the source sites had experienced releases of both gasoline and methyl tertiary butyl ether (MTBE). 

The dataset encompassed thousands of sales that extended from 1980 to 2014, and information pertaining to the environment was sourced from multiple references. While the primary emphasis of this investigation was on UST storage tank releases, a specific variable analyzed within the study was the infiltration of indoor air through vapor intrusion. In a parallel manner, the analysis also accounted for potential impacts from alternate sources, including groundwater, municipal drinking water, and surface water contamination. The proximity of properties to the sources of contamination was quantified using distance intervals, allowing the assessment of the influence of proximity on property values. As an integral aspect of the difference-in-differences model framework, properties situated 5 miles or more away from the source site were identified as control properties. 

The findings reveal notable diversity in the impacts on property prices across different sites; however, the overall trend indicates a decline of 3% to 6% following the public awareness of a release and a subsequent increase of 4% to 9% post-completion of cleanup efforts. These averaged effects encompass the property price responses observed within a 5-year timeframe after the release or the cleanup, and these effects gradually wane as distance from the site increases, extending up to 2 or 3 kilometers away. The authors expressed the view that the implementation of the meta-analysis was judiciously executed within this research, maintaining uniformity across models. This deliberate approach was adopted with the intention of mitigating significant downfalls observed across other studies. 

[1] Guignet, Dennis, Robin R Jenkins, Matthew Ranson, and Patrick Walsh. “Do Housing Values Respond to Underground Storage Tank Releases? Evidence from High-Profile Cases across the United States.” National Center for Environmental Economics Working Paper Series, 16-01, March 2016, 1–125.

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