Earthquake Risk and Housing Prices in Japan: Evidence Beforeand After Massive Earthquakes
The hedonic pricing approach is used to examine whether homeowners and/or renters
alter their subjective assessments of earthquake risks after massive earthquakes. Using
nation-wide household panel data coupled with earthquake hazard information and
records of observed earthquakes, we find that there are some modifications of individuals’
assessments of earthquake risk in both cases. We have carefully taken into consideration
the bias stemming from the use of objective risk variables as a proxy for individual risk
assessments. Our results suggest that the price discount from locating within a
quake-prone area is significantly larger soon after earthquake events than beforehand. We
argue that the most likely interpretation for this result is that households tend to
underestimate earthquake risk if there has not been a recent occurrence.
