Impact Of Natural Disasters On Residential Property Values: Evidence From Australia

One of the most prominent casualties of a natural disaster is the property market. The private and social costs from such events typically run into millions of dollars. In this chapter, we use a dataset to examine the impact of natural disasters on residential house prices using a hedonic property (HP) values approach. Data before and after both a wildfire and floods, which affected Rockhampton in central coastal part of the state of Queensland, Australia are used. The data is unique because one of Rockhampton’s suburb was affected by wildfires and another by floods. For the analysis, three suburbs namely Frenchville, Park Avenue and Norman Gardens are used. Frenchville was significantly affected by wildfires in the latter part of 2009 and to a lesser extent in 2012, while Park Avenue was affected by floods at the end of 2010, January 2011, 2012 and 2013. Norman Gardens, which was relatively unaffected, is used as a control site. This enables us to examine the before and after effects on residential property values in the three suburbs. The results confirm that in the aftermath of a natural disaster property prices in affected areas decrease even though the large majority of individual houses remain unaffected. Furthermore, the results indicate that while prices in largely unaffected suburbs may gain immediately after a natural disaster, this gain may disappear if natural disasters continue to occur in the area/region due to a flood prone stigma being created. The results have several important policy decision and welfare implications which are briefly discussed in the chapter.