Estimating Consumer Valuation of Earthquake Risk: Evidence from Japanese Housing Markets

Abstract

The relationships between seismic risk and rental and owner- occupied housing prices in the whole of Japan are examined. The empirical results from hedonic regressions with earthquake risk indices suggest that: (1) earthquake occurrence probability has a significantly negative effect on monthly housing rent, (2) the effect of earthquake probability seems to depend on the characteristics of the individual housing unit (e.g. age of dwelling) for owner-occupied housing, (3) the estimated risk premium is much larger for older buildings, and (4) the share of quake-resistant dwellings in the neighborhood area is significantly and positively related to the housing price of the individual unit. These results suggest that anti-seismic policies that target specific groups of dwellings, such as rental houses and older buildings, help to mitigate welfare loss due to earthquakes.
 

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