Estimating Effects of Wind Loss Mitigation on Home Value

29 Pages Posted: 20 Feb 2019

See all articles by Sebastain Awondo

Sebastain Awondo

University of Alabama - Culverhouse College of Commerce & Business Administration

Harris Hollans

Auburn University - College of Business

Lawrence Powell

University of Alabama - Culverhouse College of Commerce & Business Administration

Chip Wade

University of Mississippi

Date Written: February 6, 2019

Abstract

We employ a novel spatial regression model to estimate effects of windstorm loss mitigation features on the value of coastal homes. Specifically, we consider joint effects of the Insurance Institute for Business and Home Safety’s (IBHS) FORTIFIED HOMETM . designation (henceforth Fortified) and distance from the coast on the prices paid for houses. We find that on average homebuyers pay a seven-percent premium for Fortified homes, which exceeds the typical cost of building or retrofitting homes to the Fortified standard. In addition, we find that Fortified construction and distance from the coast are substitutes. The premium is highest for homes nearest the coast.

Keywords: Windstorm Risk, Self-Insurance, Hedonic Prices, Spatial Regression

JEL Classification: D12, G22, R21, R28, R31

Suggested Citation

Awondo, Sebastain and Hollans, Harris and Powell, Lawrence and Wade, Chip, Estimating Effects of Wind Loss Mitigation on Home Value (February 6, 2019). Available at SSRN: https://ssrn.com/abstract=3330193 or http://dx.doi.org/10.2139/ssrn.3330193

Sebastain Awondo

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States

Harris Hollans

Auburn University - College of Business ( email )

Department of Finance
303 Lowder Business Bldg.
Auburn University, AL 36849
United States
(334) 844-3009 (Phone)
(334)844-4960 (Fax)

Lawrence Powell (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States

Chip Wade

University of Mississippi ( email )

Oxford, MS 38677
United States

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