Conclusions
There are few studies that examine impacts of a disaster on the property market outside of the area affected by the disaster and, as far as we can find, no studies of these impacts specifically for commercial buildings. This may well be because of the difficulty in compiling appropriate datasets to examine potentially disaster-prone commercial buildings. The assistance of public authorities in the compilation of our dataset has enabled us to conduct work in this area.
Our results indicate that the impacts on commercial buildings of a public policy that officially declares certain buildings to be earthquake-prone, can be marked. Following the earthquakes, we find that CBD buildings that are publicly declared as earthquake-prone suffer an estimated average price discount of 45%. This finding indicates a very significant loss in value for existing owners.
Our analysis indicates that the requirement to remediate the buildings within a specific time period raises the probability that existing owners of officially declared earthquake-prone buildings will sell their buildings. We conjecture that those who purchase the buildings may have lower funding costs (or preferential access to finance in a credit-constrained environment) relative to the existing owners. Existing owners may be forced sellers who have no option but to accept a highly discounted price on their buildings or they may simply be maximising their (discounted) return by selling to another party who is better placed to remediate the building.
From a policy perspective, an important result is that there is no estimated discount following the earthquakes for buildings that are subsequently declared to be earthquake-prone. These findings suggest that the action of declaring a building to be earthquake-prone has real impacts on the commercial property market. This effect may be due to the presence of naïve purchasers in the market and/or due to difficulties in judging the degree of earthquake code compliance even amongst professional engineers. We make no judgement as to whether the Council’s declarations are accurate or warranted. Nevertheless, our results make clear that these declarations have a considerable impact on the commercial property market with an almost halving in price of commercial buildings that face a legally binding earthquake-prone declaration.
