XREPP seminar on the perception of the housing prices

The Department of Applied Economics at UAB invites associate professor Alicia Rambaldi, University of Queensland (Australia), to give a XREPP seminar titled “Myopia and Amnesia in Residential Property Prices. Evidence from a suburban floodplain” on Thursday, September 21st,  at 3 pm.

The seminar will take place at aula B3/123A at the Faculty of Business and Economics – Universitat Autònoma de Barcelona. Accés is free and needs no previous registration but punctuality is requested.

Link to the paper here

Abstract:

“We propose an approach to empirically implement the theoretical framework proposed by Pryce et al (2011) for analysing property prices’ responses to flood frequency and severity. Our study concentrates on the case of infrequent floods where myopic and amnesic perceptions of risk should dominate, and uses a natural experiment to empirically test Pryce et al (2011)’s theoretical pattern. In this regime observed quality adjusted prices are expected to drift away from a risk-adjusted constant quality property price towards the zero-risk constant quality property price as the years pass since the last flood. When a flood occurs, actors become aware of the true flood risk and observed prices quickly adjusts downwards towards the risk adjusted price. The city of Brisbane suffered two major devastating floods in 1974 and 2011. The construction of a dam with two compartments, flood and water reservoir, in the mid 1980s lead inhabitants and the market to underestimate the risk of another major event after that of 1974. The methodology proposed defines empirical estimates of zero-risk, risk-adjusted and actual quality adjusted prices which can be obtained using hedonic regressions and a difference-in-difference estimation. The test for amnesia and myopia is based on a block bootstrap approach. Our dataset covers property transactions for an inner Brisbane (Australia) area located 5 km from Brisbane Central Business District(CBD) with 30\% of each year’s sales being properties in the flood plain (defined by the 2011 flood) and with proximity to a waterway within the tidal reaches of the Brisbane River. While minor flooding directly impacts only very few properties, the visibility of swollen waterways can provide reminders of flood risk in between major events. This ideal setting allows us to test for myopic and amnesic behaviour for this area over the period 1990-2015. We find strong support for the behaviour.”