The Local Cost of Terror: Effects of the Second Palestinian Intifada on Jerusalem House Prices
Technion-Israel Institute of Technology - Faculty of Architecture and Town Planning
Technion - Israel Institute of Technology
Stuart A. Gabriel
University of California, Los Angeles - Anderson School of Management
Bar Ilan University - Interdisciplinary Department of Social Studies
May 26, 2010
Regional Science and Urban Economics, Vol. 40, 2010
This research presents new findings on the economic cost of terror. To that end, we provide evidence of changes in house prices in the Gilo neighborhood of Jerusalem in the wake of the 2000 Second Palestinian Intifada. During that period, Gilo suffered from sporadic and ongoing gunfire from the neighboring Palestinian village of Beit Jala. Our sample includes 555 housing transactions from the Gilo neighborhood of Jerusalem over the 1997-2008 period. Results of VAR estimation indicate that shooting events result in a lagged 12 percent reduction in Gilo house values. However, as evidenced in the impulse response functions, those effects are largely reversed within 18 months of the terror event. Difference-in-difference analysis of the micro-data permits further assessment of the neighborhood spatial incidence of terror. Results indicate an average quality-adjusted house price decline of about 10 percent among “frontline” relative to “non-frontline” dwellings in Gilo in the aftermath of the outbreak of hostilities; moreover, much of that effect persisted some five years subsequent to the cessation of violence. Research findings suggest substantial residential property value effects of terrorism as incurred by households living in conflict areas. Those same households – like many others – would be the direct beneficiaries of conflict resolution.
Number of Pages in PDF File: 40
Keywords: Terror, House Prices, Palestinian-Israeli Conflict
JEL Classification: R11, R21, R23Accepted Paper Series
Date posted: April 10, 2011
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