Guarding the Subjective Premium: Condemnation Risk Discounts in the Housing Market

26 Pages Posted: 22 Jul 2014 Last revised: 29 Nov 2015

See all articles by Sebastien Gay

Sebastien Gay

The University of Chicago

Nadia Nasser-Ghodsi

University of Chicago - Law School

Date Written: February 20, 2014

Abstract

We propose the condemnation risk discount theory, whereby home buyers deduct a discount from housing prices in the absence of insurance against the risk that the government will condemn their property for private transfer. Homeowners cannot separate out the negative risk that their home will be condemned from the positive effect that high-value redevelopment projects may have on the surrounding area. There are, consequently, competing effects of the risk of eminent domain on fair market value.

Keywords: Kelo, eminent domain, economic development

JEL Classification: K2, H7, G28, R21, R28

Suggested Citation

Gay, Sebastien and Nasser-Ghodsi, Nadia, Guarding the Subjective Premium: Condemnation Risk Discounts in the Housing Market (February 20, 2014). Tulane Law Review Vol. 89, Forthcoming; Kreisman Working Papers Series in Housing Law and Policy No. 18. Available at SSRN: https://ssrn.com/abstract=2468965

Sebastien Gay (Contact Author)

The University of Chicago ( email )

Department of Economics
1126 East 59th Street
Chicago, IL 60637
United States
773-834-0887 (Phone)

HOME PAGE: http://www.sebastiengay.com

Nadia Nasser-Ghodsi

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

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