Environmental hazards: The microgeography of land‐use negative externalities

Abstract

The decisions on the siting of hazardous facilities and compensation for nearby landowners depends on an accurate estimation of the negative externalities these facilities place on proximate land uses, primarily residential properties. In this paper we highlight the sensitivity of these estimates to the treatment of distance from the hazard and to the presence of other nearby land uses identified at a highly granular geographic level. Recent opposition to the expansion of North American pipeline capacity has been intense, mixing concerns about climate change, environmental damage, and local opposition to the physical presence of pipelines in their neighbourhoods. This paper studies the disamenity effects associated with the last factor. In doing so we generate results that more broadly address the specification and left out variable bias challenges of measuring the capitalization of negative location-specific environmental externalities. The key contributions of this paper are first showing that disamenity effects can be highly localized and easily susceptible to errors with parametric specifications. Second, that the magnitude of the effect on house prices arising from proximity are sensitive to land uses that are not the hazard in question, but whose presence may be correlated with the hazard. And third, that negative news about a hazard increases the assessment of risk and lowers nearby house values, but that this effect is temporary. We find that the quantitative effects of proximity to oil pipelines are relatively small: prices are lower by 5.7 percent ($39.3k) for properties with a pipeline easement, 2.1 percent ($14.4k) lower for those properties adjacent to a property with an easement, and 1.4 percent ($9.6k) for those adjacent to the former, one property further away from the pipeline. Though this last result is sensitive to specification choice. The prices of all residential properties further away from the pipeline in our data are unaffected. When expressed in cardinal distance, only the prices for residential properties within 100 meters of the pipeline easement are affected. The findings here suggest that care and flexibility with functional forms, the perception of hazards, and attention to land use contexts is necessary for an analysis of the negative externalities for residential property associated with proximity to environmental disamenities and that simple parametric treatments are highly likely to result in biased estimates.

Information shock of disaster and hazard: Impact of Kaohsiung gas explosions and risk disclosure on the equalizing difference in the housing market

“…An adverse information shock that increases public risk perception of the disaster‐prone properties may lower these properties’ value. However, the literature also suggests that this negative impact on the property value may gradually diminish over time (e.g., Atreya et al., 2013; Bin & Landry, 2013; Hansen et al., 2006; Somerville & Wetzel, 2021). We test whether such a pattern existed in Kaohsiung's property market after the information disclosure of the hazardous pipeline locations.…”

“…impact on the property value may gradually diminish over time (e.g., Atreya et al, 2013;Bin & Landry, 2013;Hansen et al, 2006;Somerville & Wetzel, 2021). We test whether such a pattern existed in Kaohsiung's property market after the information disclosure of the hazardous pipeline locations.…”

“…Because the theory has generality, economists have applied it to empirical studies of a wide range of disastrous events. These include natural catastrophes, such as earthquakes (e.g., Beron et al., 1997; Deng et al., 2015; Naoi et al., 2009; Singh, 2019), floods (e.g., Atreya et al., 2013; Brouwer et al., 2008; Gibson & Mullins, 2020; Kousky, 2010), and hurricanes (Bin & Landry, 2013; Bin & Polasky, 2004; Cohen et al., 2021); and human‐instigated calamities, such as nuclear accidents (e.g., Ando et al., 2017; Bauer et al., 2017; Boes et al., 2015; Fink & Stratmann, 2015; Tanaka & Zabel, 2018; Zhu et al., 2016) and pipeline explosions (e.g., Freybote & Fruits, 2015; Guignet & Martinez‐Cruz, 2018; Hansen et al., 2006; Somerville & Wetzel, 2021; Wilde et al., 2014). In this literature, the newer studies often use the popular difference‐in‐differences (DD) to quantify the impact since a disaster intuitively is an adverse treatment.…”

“…Also, during that line's construction period, the prices appeared more sensitive to media coverage on accidents of other pipelines. The recent studies of Guignet and Martinez‐Cruz (2018) and Somerville and Wetzel (2021) applied the DD analysis. The former scrutinized time on the market in two suburban counties of Maryland, USA, and the latter evaluated the price responses to pipeline information shocks in Vancouver, Canada.…”

Too Late to Buy a Home? School Redistricting and the Timing and Extent of Capitalization

“…Among all sales, only 8% were subject to both elementary and high school rezoning and only 3% were subject to all redistricting of all three levels of schools. 5 See, for example,Kiel and McClain (1995) looked at a rumored but later constructed incinerator facility and its impact on house prices;Case et al (2006) examined the e ect of contamination on property values where the location of contamination was a ected by urban growth; and a recent paper,Somerville and Wetzel (2021), also investigates information shocks based on proximity to negative externalities from facilities. 6 e ve operating high schools in Faye e County prior to August 2017 are Bryan Station, Paul Dunbar, Henry Clay, Lafaye e, and Tates Creek as can be seen in FigureA1.As also seen in FigureA1the zone for Frederick Douglass is between those of the Bryan Station High School and Henry Clay High School.…”