01 Apr

Looking Under the Hood 9.4– A Study of Wildfire Impacts on Residential Prices in Montana

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.

Stetler et al.[1] investigated possible property value impacts from multiple wildfires in northwest Montana. This study was unique for several reasons. First, the authors utilized a study area that included wildfire prone areas, as compared to other studies in non-wildfire prone areas. Second, this study area spanned across large geographic distances and included multiple fires of various sizes. Third, the authors utilized a binary variable for a view of burned area as an independent variable in the model. Lastly, this analysis accounted for environmental influences such as proximity to bodies of water and other recreational amenities.  The authors obtained sale information from the Northwest Montana Association of Realtors. The dataset of residential sales spanned from June 1996 to January 2007 and included approximately 17,693 observations. Information on wildfire areas and burn dates was obtained from the state of Montana Natural Resource Information System website, the Forest Service Northern Region Geospatial Library, and the Landfire project. This model benefited from a high degree of explanatory power, evidenced by the r-squared that ranged from 82% to 83%. The hedonic output offered evidence that wildfires provided a negative impact to property values within 10 KM from a burned area. For homes located within 5 KM from a burned area, a 13.7% ($33,232) diminution in value was observed as compared to unimpaired homes. This damage estimate decreased to 7.6% ($18,924) for homes located within 5 to 10 KM from a burned area. Furthermore, the binary variable for view of a burned area revealed an additional $6,600 diminution.  

[1]. Stetler, Kyle M., Tyron J. Venn, and David E. Calkin. “The Effects of Wildfire and Environmental Amenities on Property Values in Northwest Montana, USA.” Ecological Economics 69, no. 11 (2010): 2233–43.

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