Perceived earthquake risk in housing purchases

Abstract

AbstractThis paper investigates the impact of an earthquake on households' perception of the seismic risks associated with residential locations—and, consequently, the impact of this change in perceptions on real estate prices—by performing revealed preference analysis on a unique data set of house prices and damage claims after the 2010/2011 Canterbury earthquake in New Zealand. We show that both informational and heuristic obstacles could have caused households to underestimate location earthquake risk before the quake and overreact to it after the quake. Our findings highlight the importance of quake-related information for seismic risk management and are robust to households’ risk preferences in neighborhood propensity score matching.