The Impact of Hurricane Mitigation Features and Inspection Information on House Prices

Abstract

This paper examines the effect of hurricane mitigation features and their verification on the transaction prices of single-family homes. Some of these features are obvious to buyers and sellers (visible) and others are not easily observed (hidden). Prior research on the relationship between these features and house prices has implicitly assumed that the features are known and that buyers and sellers are equally informed. This paper contributes to the literature by examining the potentially different effects of the visible and hidden features, and the verification of each, on prices in an environment of incomplete and asymmetric buyer-seller information. We assemble a dataset that includes sale information on all detached single-family residential properties in Miami-Dade County merged with a dataset of insured properties from Citizens Property Insurance Corporation. Using a treatment effects model, we find that properties with both visible and hidden mitigation features that have been verified by inspection sell, on average, at prices approximately 10% higher than properties where the features have not been verified, ceteris paribus. The results also indicate that although visible and hidden features differ significantly in their effects on price, the magnitude of the effect of the inspection on price is surprisingly similar whether features are visible or hidden. Our findings indicate that the price effect of the inspection is due to a combination of the risk mitigating benefits of the features and the insurance premium credits they represent.

Keywords: House prices; asymmetric information; information disclosure

JEL Classification: R30