The Effects of the BP Deepwater Horizon Oil Spill on Housing Markets

Abstract

When the Deepwater Horizon oil rig exploded in 2010, it resulted in the largest off-shore oil spill in United States history. Economic theory dictates that the oil damage and restitution payments that resulted from the spill should be capitalized into property values. To measure the extent of this capitalization, we create a novel dataset by linking surveys of the location and severity of oil observed along over 4,300 miles of the Gulf Coast to measures of local housing market outcomes. We then perform hedonic-style analysis to determine the net effects of the spill on affected real estate markets. In doing so, we provide the first plausibly causal estimates of the effect of the spill on affected housing markets throughout the Gulf region. Identification comes from a triple-difference framework that exploits the random nature of both the spill and the spatial distribution of oil that affected coastal communities as well as controlling for the confounding effects of the housing market crash. Results suggest that on net, the BP oil spill caused a significant decline in the home prices of between four and eight percent that persisted until at least 2015. This implies housing markets capitalized $3.8 billion to $5.0 billion in spill damage net of clean-up and restitution. These results are robust to numerous alternative definitions of treatment and control groups.

Keywords: Environmental Damage, Oil Spill, Housing Markets, Capitalization, Hedonic Analysis, Triple-Difference Estimator

JEL Classification: Q40, Q51, Q53, R11, R31