Environmental Risk and Residential Property Prices

"Environmental risk has become one of the hotly debated topics in political, social, economic, investment and financial circles over the past decade. In addition to danger to public health, environmental risk can adversely affect the economy, and thus, the investment prospects of a place. In relation to real property, environmental risk can substantially reduce market values because of direct and indirect costs of remediation and stigmatization attendant to environmental contamination. There are two kinds of stigma: ""residual"" and ""proximity"" stigma. Residual risk is the permanent negative impact on property value resulting from the public's desire to avoid legal and toxicological risk while proximity stigma is the negative impact suffered by properties that are in close proximity to contaminated site(s). The extant literature mainly focuses on residual stigma. This paper, on the other hand, specifically focuses on the effect that deteriorated environmental amenity exposed by contiguous contaminated sites has on residential properties (HDB flats, private apartments and Condos) in Singapore. In other words, the paper deals with proximity stigma to address three issues. The first issue relates to the price-distance relationship between residential properties and the industrial estates (source of contamination) in Singapore. The second issue deals with the extent to which environmental risk affects proximate residential properties within specific concentric zones around the industrial estates while the third issue relates to time-environmental-risk relationship. The paper employs the hedonic model to analyse two property sub-markets, HDB (i.e. public housing) and private housing sub-markets. The results show that proximity to industrial estates does have a negative impact on residential property prices. However, the price-distance relationship is not monotonic. Similarly, time affects the market's perception of environmental risk. "