Academic journal article Journal of Real Estate Literature

The Impact of Public Perception of Earthquake Risk on Istanbul's Housing Market

Academic journal article Journal of Real Estate Literature

The Impact of Public Perception of Earthquake Risk on Istanbul's Housing Market

Article excerpt

Abstract

This paper examines the impact of public perception of earthquake risk on Istanbul's housing market by investigating the spatial distribution of the average house values and the changes in average house prices in Istanbul between 1995 and 2000. Soil type and distance to the fault lines in the Sea of Marmara are used as proxies for public perception of earthquake risk. The results of regression analysis show that distance from fault lines is an important factor in explaining house values and its impact on house values increased after the 1999 Kocaeli earthquake. Furthermore, there is a quadratic relationship between soil type and house values. However, none of the measures of earthquake risk significantly affect the change in house values. These findings suggest that public perception of earthquake risk enhanced and the public information about earthquake hazard had significant impact on house values.

Introduction

The purpose of this paper is to examine the impact of the public perception of earthquake risk on house prices in Istanbul between 1995 and 2000. The introduction of natural hazards information into a market will potentially alter individuals' perception of risk as that risk relates to investment activities (Bernknopf, Brookshire and Thayer, 1990). After the Kocaeli earthquake in 1999, the public became more conscious of dangers of a catastrophic earthquake such as injury and death, damage to property and disaster relief costs. Public perception of earthquake risk has been developed by continual media attention to warnings from geologists about soil types and the distance from the fault lines in the Sea of Marmara. It is known that certain types of soil enhance ground motion and increase earthquake damage. Also, fault lines are described with a probability distribution of possible earthquake magnitudes. It is expected that these warnings have caused temporary shocks to the market and the community proportional to the level of the risk announced. In fact, although a probabilistic seismic hazard map has not been yet prepared, demand for housing in a few neighborhoods has increased and thus housing prices have too, while in others, it has fallen according to public perceptions of geologists' findings.

Although there have been several studies to determine environmental impacts on housing prices, the few studies with respect to earthquake risks have been mostly in the United States (Willis and Asgary, 1997). Those studies use different methods to determine the effect of earthquake risks on the housing market, and have produced somewhat different results. Brookshire and Schulze (1980) developed a contingent valuation method to determine the effects of earthquake risk on the housing market in California. According to their results, only 26% of respondents were willing to pay more for a stronger construction. Palm (1987, 1990) did a group of studies on housing markets and earthquake risks. She investigated the effectiveness of mandated disclosure legislation in California. According to this legislation, real estate agents should inform all home buyers about the seismic risk related to the location of a house. Her study showed that people paid little attention to earthquake hazards. Palm (1990) also conducted a survey of real estate appraisers to evaluate their methods of dealing with earthquake hazards. The results of her study showed that the legislation did not significantly affect the housing market. Most of the appraisers did not give any higher price on an identical property in a lower risk area. They indicated that clients had only rarely asked about seismic hazards, and few purchasers checked for evidence of previous damage from earthquakes or location on a surface-fault trace (Willis and Asgary (1997). Bernknopf, Brookshire and Thayer (1990) studied the effects of earthquake hazard risks on investment behavior and housing prices in the resort community of Mammoth Lakes in California. …

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