Living on the edge: How does your house price respond to urban hazard risks?

Franco Macdonald 2018


This work considers the capitalization of urban hazard information via the residential real estate marketof Lisbon, Portugal. We employ a spatial hedonic framework to estimate the impact of being located across areas in the municipality with a heterogeneity of urban flooding risks or seismic hazards. Special attention is given to the modifiable aerial unit problem and spatial influences in constructing measures or incorporating spatial considerations to the empirical estimation. We construct gridded spatial fixed effects which mitigate these biases and further employ a geographic regression discontinuity ensuring our resultsare not sensitive to underlying locational features.

Results indicate that the residential real estate market responds to hazard information with lower dwelling pricesobserved in areas with a high risk in the range of 2.3% for flooding risk and 1.1% for seismic risk. The largest responseoccurs due to urban flooding which is highly publicized and a relatively common occurrence for residents in comparison to seismic activity.Results suggest further that the combined effect of being subject to multiple hazards yield larger price reductionsin the order of 2.8%, highlighting the importance of considering local contexts and interactive behaviour for policy discussion and mitigation planning.Flooding risk zones are heterogeneous in their impacts with ecological amenities such as parks or urban forests mitigating this negative impact while higher density areas compound the negative effect.

Presented at the VIII Conference of the Spanish-Portuguese Association of Natural Resources and Environmental Economics

Preliminary draft. Please do not cite without authors permission.

Jacob L. Macdonald
Jacob L. Macdonald
Geographic Data Science Research Associate

My research interests include urban-environmental data science and impact evaluation.