Induced earthquakes and house prices: the role of spatiotemporal and global effects

Abstract

AbstractThis paper contributes to the existing literature on the explanation of housing prices. First, our proposed methodology accounts for cross-sectional dependence, both locally and globally, using individual data of more than 200,000 transactions in the three most northern provinces of the Netherlands over the period 1993–2014. Second, the selection of houses within each focal house’s sub-market is not only based on distance and time, but also on their degree of similarity. Third, global cross-sectional dependence is not modeled by time-fixed effects, as in previous studies, but by cross-sectional price averages. Fourth, we accumulate the strength and frequency with which earthquakes affect each focal house before it was sold into one single measure using a seismological model and then subdivide it into different bins to account for nonlinear effects and to determine a threshold below which earthquakes have no effect. This way we are able to investigate the propagation of the detrimental impact of earthquakes on housing prices over space and time without the need to select a reference area in advance, which potentially might also have been affected by earthquakes.