Is flood risk capitalized into real estate market values? : a Mahalanobis-metric matching approach to housing market in Busan, South Korea
Abstract
Natural disasters are substantial source of social and economic damage around the globe. The amount of damage is larger when such catastrophe events happen in urbanized areas where the wealth is concentrated. Disasters cause losses in real estate assets, incurring additional cost of repair and maintenance of the properties. For this reason, natural hazard risk such as flooding and landslide is regarded as one of the important determinants of homebuyers' choice and preference. In this research, we aim to reveal whether the past records of flood affect real estate market values in Busan, Korea in 2014, under a hypothesis that homebuyers' perception of natural hazard is reflected on housing values, using the Mahalanobis-metric matching method. Unlike conventionally used hedonic pricing model to estimate capitalization of flood risk into the sales price of properties, the analytical method we adopt here enables inferring causal effects by efficiently controlling for observed/unobserved omitted variable bias. This matching approach pairs each inundated property (treatment variable) with a non-inundated property (control variable) with the closest Mahalanobis distance between them, and comparing their effects on residential property sales price (outcome variable). As a result, we expect price discounts for inundated properties larger than the one for comparable non-inundated properties. This research will be valuable in establishing the mitigation policies of future climate change to relieve the possible negative economic consequences from the disaster by estimating how people perceive and respond to natural hazard. This work was supported by the Korea Environmental Industry and Technology Institute (KEITI) under Grant (No. 2014-001-310007).
- Publication:
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AGU Fall Meeting Abstracts
- Pub Date:
- December 2016
- Bibcode:
- 2016AGUFMPA14B..08J
- Keywords:
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- 1807 Climate impacts;
- HYDROLOGYDE: 4343 Preparedness and planning;
- NATURAL HAZARDSDE: 6339 System design;
- POLICY SCIENCESDE: 6344 System operation and management;
- POLICY SCIENCES