Salience of hazard disclosure and house prices: Evidence from Christchurch, New Zealand

Abstract

The risk from extreme, rare events is hard to assess, possibly due to imperfect information. This paper studies an extreme but often ignored risk, liquefaction. A precise, easily verifiable, and trusted information about land liquefaction hazard, Technical Categories (TCs), was released in October 2011 after the 2010/2011 earthquake sequence (EQS) in Christchurch. This paper evaluates the impact of the provision of TCs on housing prices in Christchurch using housing sales 2005–2018. I find that TC classification caused a persistent price reduction in neighborhoods assessed with the highest future liquefaction risk (TC3). Results from boundary discontinuity design show the immediate sharp price reduction in TC3, relative to TC2, reached 17.7% by the third year after the provision of TC classification, followed by a partial recovery that stabilized around 13%. I also find evidence that even though multiple versions of the liquefaction hazard map were produced between 2001 and 2005, these non-salient updates were irrelevant in periods before and after the 2010/2011 EQS.