The Local Cost of Terror: Effects of the Second Palestinian Intifada on Jerusalem House Prices

40 Pages Posted: 10 Apr 2011  

Yuval Arbel

Technion-Israel Institute of Technology - Faculty of Architecture and Town Planning

Danny Ben-Shahar

Tel Aviv University

Stuart A. Gabriel

University of California, Los Angeles - Anderson School of Management

Yossef Tobol

The Jerusalem College of Technology; The Carmel Academic Center

Date Written: May 26, 2010

Abstract

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.

Keywords: Terror, House Prices, Palestinian-Israeli Conflict

JEL Classification: R11, R21, R23

Suggested Citation

Arbel, Yuval and Ben-Shahar, Danny and Gabriel, Stuart A. and Tobol, Yossef, The Local Cost of Terror: Effects of the Second Palestinian Intifada on Jerusalem House Prices (May 26, 2010). Regional Science and Urban Economics, Vol. 40, 2010. Available at SSRN: https://ssrn.com/abstract=1804689

Yuval Arbel

Technion-Israel Institute of Technology - Faculty of Architecture and Town Planning ( email )

Technion City
Haifa 32000
Israel

Danny Ben-Shahar

Tel Aviv University ( email )

Tel Aviv
Israel

Stuart A. Gabriel (Contact Author)

University of California, Los Angeles - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-2922 (Phone)
310-206-5455 (Fax)

HOME PAGE: http://www.anderson.ucla.edu

Yossef Tobol

The Jerusalem College of Technology ( email )

Jerusalem
Israel

HOME PAGE: http://www.jct.ac.il/he/tobol

The Carmel Academic Center ( email )

Haifa
Israel

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