Environmental Contamination and House Values: A Study of Market Adjustment

Abstract

In many communities throughout the United States, contaminated sites are identified and addressed by the Environmental Protection Agency (EPA). In each of these communities, the EPA presents a plan of action and provides the community with information about progress being made. Does the housing market adjust quickly after announcements by EPA concerning the existence and toxicity of Superfund sites? Other studies have shown that the levels of house prices fall when people suspect there is a problem, and again when the EPA announces that the site is toxic (e.g. Kiel, 1995), but how can we tell when or if the market has completely adjusted to the existence of such a site? If the site is always perceived as an externality, then the coefficient on distance from the house to the site in the hedonic regression on house values should remain statistically significant and negative. Thus merely looking at the coefficient does not aid in determining when, or if, the market has cleared.hedonic models, environmental prices, housing, adjustment process