Possible effects of potential lahars from Cotopaxi volcano on housing market prices

Richard Caleb Echegaray-Aveiga,Richard Damian Echegaray-Aveiga,Theofilos Toulkeridis,Fabian Rodríguez-Espinosa

doi:10.1186/s13617-020-00093-1

Richard Caleb Echegaray-Aveiga, Richard Damian Echegaray-Aveiga + Show 2 more

Open Access

https://doi.org/10.1186/s13617-020-00093-1

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Abstract

The recent awakening of the Cotopaxi volcano in Ecuador set the conditions to estimate and verify the possible effects of potential lahars on residential housing unit prices. About 300,000 people live in the Los Chillos valley, which is the northern natural drainage of Cotopaxi’s lahars; therefore, the effects on house values can be significant. We have used housing information from 2016 of 240 properties to settle a hedonic price model within and outside of the lahar’s area. The regression model has a significant R2 value of about 0.723. The variable that determined the effects of potential lahar on the hedonic model demonstrates that the value of a residence house unit will increase its price by 41.99 USD for each meter away from the lahar path. Our study suggests that environmental disamenities generated by natural hazards will have a negative effect on residential house unit prices and we infer that consumers would be willing to pay a higher price in order to avoid such potential disamenities.

Highlights

Hedonic housing models provide an intuitive analytical tool for adjusting property prices to environmental amenities and disamenities (Hulten 2003)
Based on the mentioned aspects, the consumer reacts to environmental amenities and disamenities the same way as they do to the number of floors or bedrooms (Triplett 1983; Epple 1987; Feenstra 1995). Environmental disamenities, such as contamination or natural hazards, will have a negative effect on housing attributes and prices and consumers would be willing to pay more in order to avoid such potential disamenities (MacDonald et al 1987; Pryce et al 2011)
The first part is composed of the hedonic model used, while the second part comprises the Geographic information systems (GIS) tools used for spatial research

Summary

Introduction

Hedonic housing models provide an intuitive analytical tool for adjusting property prices to environmental amenities and disamenities (Hulten 2003). Based on the mentioned aspects, the consumer reacts to environmental amenities and disamenities the same way as they do to the number of floors or bedrooms (Triplett 1983; Epple 1987; Feenstra 1995). Environmental disamenities, such as contamination or natural hazards, will have a negative effect on housing attributes and prices and consumers would be willing to pay more in order to avoid such potential disamenities (MacDonald et al 1987; Pryce et al 2011). The Padilla and Bosque model was adopted for this study to determine critical lahar hazard areas

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Conclusion