Literature study on earthquakes and house prices

Publication number: 2016-27
Authors: C. Koopmans & W. Rougoor
Commissioned by: Nederlandse Aardolie Maatschappij (NAM)
Published by: SEO Amsterdam Economics

The province of Groningen in the Netherlands suffers from earthquakes caused by the production of natural gas. The producer, Nederlandse Aardolie Maatschappij (NAM), has asked SEO Amsterdam Economics to undertake an international literature review on the effects of (the risk of) earthquakes and other natural disasters on house prices.

The main findings are:

  • House prices in earthquake zones are strongly affected by (subjective) perceptions of earthquake risks. These perceptions are not only determined by the actual (objective) risks but also by information provision and earthquakes that have occurred in the past.
  • Both the perceived risk of earthquakes and its impact on the development of land and house prices fluctuates over time.
  • Media attention can affect the perceived risk of earthquakes and therefore also the house prices.
  • Risk-reducing measures and financial compensation result in higher house prices. Additional employment opportunities in the area can also positively affect the house prices.
  • Relatively large effects of earthquake risks on house prices are found in studies using survey data or other estimated house values. If realized sales prices are being used, the effect is usually smaller.
  • The earthquakes in the northern Netherlands are light compared to the earthquakes in other countries in the described international literature. Logically, the measured price effects in the Netherlands are smaller (approximately 2 percent) or not statistically significant. The price effects of earthquake risks seem to be smaller than those of the risk of flooding.

Category: 2016, Carl Koopmans, Ward Rougoor, Financial Markets & Finance