Chapter 6 The Effects of Wildfire Disclosure and Occurrence on Property Markets in California

Abstract

This paper analyzes the effects on housing prices of fire hazard disclosure in real estate transactions. In 1998, California passed the Natural Hazard Disclosure Law (AB 1195), which requires sellers to fill out a form disclosing to potential buyers whether their residence is in a statutory flood, wildfire, or seismic zone. This study looks specifically at whether homes in designated wildfire hazard zones in California saw any drop in value following this law. We found that location in a statutory fire zone is actually associated with a 3% positive price premium both before and after AB 1195, probably due to the unmeasured amenity values associated with location in the urban–rural interface. However, the combination of proximity to recent fire perimeters and post-AB 1195 disclosure does have a negative effect on selling price. After AB 1195, homes in statutory fire hazard zones that were within five kilometers of the perimeter of a major and recent fire sold on average for 5.1% (or $10,600) less than comparable homes that were in statutory fire zones but not near the perimeter of a recent fire, while no such differential exists prior to the law. This indicates that state-level fire-disclosure requirements prior to AB1195 (which were numerous, but vague, limited to fewer hazard zones, and poorly enforced) were inadequate. Therefore, while disclosure on its own does not appear to have influenced the real estate market in all statutory fire zones, it does negatively impact prices when in combination with proximity to a recent major fire.

Citation

Troy, A. and Romm, J. (2007), "Chapter 6 The Effects of Wildfire Disclosure and Occurrence on Property Markets in California", Troy, A. and Kennedy, R.G. (Ed.) Living on the Edge (Advances in the Economics of Environmental Resources, Vol. 6), Emerald Group Publishing Limited, Leeds, pp. 101-119. https://doi.org/10.1016/S1569-3740(06)06006-8