13 May

Real estate 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 U.S. Environmental Protection Agency (EPA) mandated that specific industrial properties engage in the Risk Management Plan (RMP) program to ensure safe industrial practices. This RMP program was tailored towards ensuring public safety and ecological integrity by averting unintended chemical emissions that might lead to outcomes such as toxic plumes, fumes, ignitions, and blasts. With a particular emphasis on protecting nearby communities adjacent to industrial facilities, the EPA's RMP initiative aimed to mitigate hazards for neighboring populations. It encompassed a diverse range of sectors, from large-scale production plants like refineries and chemical plants to smaller facilities such as distributors of agricultural chemical products, systems for water treatment, and storage facilities for chilled food items. At the time of the study, the RMP program oversaw nearly 12,000 U.S. facilities, illustrating its extensive reach and holistic risk management strategy. 

In examining the ramifications of chemical incidents at RMP facilities on nearby inhabitants, Guignet et al. conducted a comprehensive analysis of over 3.6 million transactions involving single-family residences in Ohio, Pennsylvania, and Michigan from 2004 to 2014. They employed methods for assessing the value of SFRs based on intrinsic characteristics, utilizing models for quasi-experimental analysis, such as difference-in-differences and triple differences, to conclude. Their investigation delved into transactions involving homes and locations of RMP programs within the states over the designated period. By integrating datasets encompassing all RMP facilities and chemical mishaps monitored by the EPA's RMP program and data regarding transactions involving single-family residences obtained through Zillow's ZTRAX program, they explored how RMP facilities and accidents impacted property values in adjacent communities. Additionally, they procured supplementary data from various sources to compute distances between residences and local amenities or detrimental conditions, such as major thoroughfares, sizable bodies of water, and sites identified under the Superfund program. 

The author’s findings revealed various impacts of chemical incidents on single-family property values, underscoring the importance of effective risk management. On average, accidents did not exert a significant influence on SFR property values. However, incidents resulting in adverse health effects, pollution of the environment, evacuations, or directives to seek refuge in place precipitated a discernible decline in the value of residences within a five-kilometer radius, ranging from 5% to 7%. This equated to an average reduction in property values ranging from $12,000 to $17,000. Individual buyers and sellers of properties in nearby housing markets exhibited heightened awareness regarding incidents with offsite effects compared to those solely involving onsite effects. Moreover, residences within two kilometers of a solitary RMP facility, regardless of any releases, tended to experience a property value diminution ranging from 2% to 4%, overall, on balance. Collectively, proximity to multiple RMP facilities increased the diminution, with residences within a kilometer of three RMP facilities experiencing a decrease in value exceeding 12% and those within 1 to 2 kilometers experiencing a 5% reduction. Additional declines in property values attributable to chemical incidents at these facilities further contributed to preexisting impact. 

Guignet, Dennis, Robin Jenkins, James Belke, and Henry Mason. "The Property Value Impacts of Industrial Chemical Accidents." Journal of Environmental Economics and Management, forthcoming (2023).

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