The Impact of Exogenous Shocks on House Prices: the Case of the Volkswagen Emissions Scandal

Abstract

This study analyzes to what extent the announcement on 9/18/2015 of the VW diesel emissions scandal affected house prices in the vicinity of Chattanooga, TN, the location of the only VW production plant in the United States at that time. We examine the impact of the announcement with house transactions data for the 3 years from 2014 to 2016. We explore a number of alternative methods, including a permutation test, to tie down causation. Our results indicate that the brunt of the negative impact occurred 61 to 90 days after the announcement, with no statistically significant negative effects after 90 days. Although the average price discount for the study area is modest at about 3% to 4.5%, the effect tends to be significantly larger for locations closer to the VW plant. However, geographical distance has a distinctly non-linear influence on the price discount.