Valuing Mitigation: Real Estate Market Response to Hurricane Loss Reduction Measures

Simmons, Kevin M.; Kruse, Jamie Brown; Smith, D.

doi:10.2307/1061724

Cited by 68 publications

(37 citation statements)

References 17 publications

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“…The damage to structures and ensuing cleanup is likely to affect prices and growth in residential housing markets. To date, most disaster-related housing studies focused on property damage evaluation and mitigation (Fronstin and Holtmann 1994;Simmons and Kruse 2000;Simmons et al 2002;DeSilva et al 2004). 3 Houses are a special kind of durable good and as such might be affected by wind disasters individually, and wholly, as reflected by the market.…”

Section: Introductionmentioning

confidence: 99%

Local housing price index analysis in wind-disaster-prone areas

2006

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This study examines the effect of severe wind events on the mean and variance of housing price indices of six metropolitan statistical areas (MSA) that are vulnerable to hurricanes and/or tornadoes. The research focuses on three areas that experienced significant tornado activity (Fort Worth-Arlington, Nashville, and Oklahoma City) and three hurricane-prone areas (Corpus Christi, Miami, and Wilmington, NC). An econometric time series model that captures the housing market responses to severe windstorms is utilized. The model estimates changes in the local housing price index (HPI) as a function of several control variables as well as dichotomous variables that correspond to the tornadoes and hurricanes. As expected, the statistical findings indicate an immediate but short-lived decline in housing prices following a tornado or hurricane. Somewhat surprising is the result that the impact on the housing market is remarkably consistent whether the wind event was a hurricane or a tornado. Hurricanes and tornadoes are vastly different in terms of the point probabilities of a hit, the scope of the affected area and the lead time that supports last minute preparation to mitigate damage. It appears that the market response to destruction of real property does not distinguish between the types of wind event that produced the damage to the region. Results suggest that windstorms result in an immediate one-half to two percent reduction in total MSA housing value. This corresponds to a range of $34 million to $580 million in lost housing value. Estimates indicate some differences in how long market values 2006 continue to decline in the periods following the wind event; however, most of the decline occurs within four quarters after the windstorm. These differences can be attributed to the particular time series characteristics of the specific housing markets and their respective housing price indices. The market serves the purpose of integrating and normalizing the losses. In so doing the market provides a metrica method for calibrating and comparing structural damage caused by different phenomenon.

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Section: Introductionmentioning

confidence: 99%

Local housing price index analysis in wind-disaster-prone areas

2006

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“…The hedonic price method has been used to value hurricane mitigation (Simmons et al 2002), earthquakes (Murdoch et al 1993) and flood zones (Harrison et al 2001). For example, relocation of structures from floodplains leads to open space amenities for some property owners.…”

Section: Revealed Preference Approachesmentioning

confidence: 99%

Estimating environmental benefits of natural hazard mitigation with data transfer: results from a benefit-cost analysis of Federal Emergency Management Agency hazard mitigation grants

Whitehead

Rose

2009

Mitig Adapt Strateg Glob Change

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“…Even for those homeowners who sell their house before the end of the 30-year study period, the sprinkler investment might pay. Simmons et al [30], for example, finds in the case of hurricane hazards that sellers of mitigated houses receive larger sale prices and recover much of their mitigation investment cost. Simmons et al [30] also suggest that even higher sales prices might occur if hazard mitigation produces a homeowner insurance credit.…”

Section: Benefit-cost Analysismentioning

confidence: 99%

“…Simmons et al [30], for example, finds in the case of hurricane hazards that sellers of mitigated houses receive larger sale prices and recover much of their mitigation investment cost. Simmons et al [30] also suggest that even higher sales prices might occur if hazard mitigation produces a homeowner insurance credit. Recall that the insurance credit for a residential fire sprinkler system is significant.…”

Section: Benefit-cost Analysismentioning

confidence: 99%

Economic Performance of Residential Fire Sprinkler Systems

Butry

2008

Fire Technol

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A benefit-cost analysis is performed to measure the expected present value net benefits (PVNB) resulting from the installation of a residential fire sprinkler system in a newly constructed, single-family house. The benefits and costs associated with installation and use of a fire sprinkler system are compared across three prototypical single-family house types: colonial, townhouse, and ranch. Each of the house types varies by design, size, and fire sprinkler affordability. Six fire sprinkler system designs are evaluated: a multipurpose network system, three stand-alone systems, and two stand-alone systems equipped with a backflow preventer. The sprinkler designs vary by installation cost (materials and labor cost) and required annual maintenance, but all were designed to meet the NFPA 13D standard. The estimated benefits of fire sprinklers include reductions in the following: the risk of civilian fatalities and injuries, homeowner insurance premiums, uninsured direct property losses, and uninsured indirect costs. Results show that residential sprinkler systems not requiring expensive annual upkeep or maintenance are economical. The expected PVNB in 2005 dollars is estimated as $2,967 for the colonial-style house, $3,099 for the townhouse, and $4,166 for the ranch-style house, given installation of the lowest life-cycle cost sprinkler system in each of the house types. A sensitivity analysis that measures the variability of the results to changes in the modeling assumptions confirms the robustness of the baseline analysis.

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Valuing Mitigation: Real Estate Market Response to Hurricane Loss Reduction Measures

Cited by 68 publications

References 17 publications

Local housing price index analysis in wind-disaster-prone areas

Local housing price index analysis in wind-disaster-prone areas

Estimating environmental benefits of natural hazard mitigation with data transfer: results from a benefit-cost analysis of Federal Emergency Management Agency hazard mitigation grants

Economic Performance of Residential Fire Sprinkler Systems

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