Before a Fall: Impacts of Earthquake Regulation and Building Codes on the Commercial Building Market

26 Pages Posted: 14 Nov 2015

See all articles by Levente Timar

Levente Timar

Motu Economic and Public Policy Research Trust; GNS Science

Arthur Grimes

Motu Economic and Public Policy Research Trust

Richard Fabling

Motu Economic and Public Policy Research Trust

Date Written: October 11, 2015

Abstract

We test whether a major earthquake in one city (Christchurch, New Zealand) affects the prices of earthquake-prone commercial buildings in a city (Wellington) that was unaffected by the disaster. In particular, we test whether the official public declaration of a building as being earthquake-prone (with a corresponding requirement to remediate the building to minimum earthquake code requirements) has an effect on price over and above that experienced by similarly earthquake-prone (but not yet declared) buildings. We distinguish the latter by isolating sales of those buildings that are subsequently declared to be earthquake-prone. We find that in the CBD, the price discount that accompanies an official earthquake-prone declaration averages 45% whereas there is no observable discount on buildings that are subsequently declared earthquake-prone. Consistent with our theoretical model that anticipates forced sale of some officially declared earthquake-prone buildings, the probability of sale of officially declared earthquake-prone buildings rose markedly after the Christchurch earthquakes. Our results therefore show that officially declared earthquake-prone status has a considerable impact on the commercial property market that is separate from the effects of being earthquake-prone but where the building has not (yet) officially received that status.

Keywords: Earthquake-prone buildings, commercial property prices, forced property sale

JEL Classification: Q54, R33, R38

Suggested Citation

Timar, Levente and Grimes, Arthur and Fabling, Richard Blaikie, Before a Fall: Impacts of Earthquake Regulation and Building Codes on the Commercial Building Market (October 11, 2015). Available at SSRN: https://ssrn.com/abstract=2689974 or http://dx.doi.org/10.2139/ssrn.2689974

Levente Timar (Contact Author)

Motu Economic and Public Policy Research Trust ( email )

Level 1, 93 Cuba Street
P.O. Box 24390
Wellington, 6142
New Zealand

GNS Science ( email )

1 Fairway Dr
Avalon
Lower Hutt
New Zealand

Arthur Grimes

Motu Economic and Public Policy Research Trust ( email )

19 Milne Terrace
Island Bay
Wellington 6002
New Zealand

Richard Blaikie Fabling

Motu Economic and Public Policy Research Trust ( email )

Level 1, 93 Cuba Street
P.O. Box 24390
Wellington, 6142
New Zealand

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