Saturday, 28 July 2018

Radiation and house prices after the Fukushima nuclear disaster

How much less would you be willing to pay for a house in an area affected by radiation significantly above background levels, compared with an otherwise-identical house that is unaffected by radiation? It's not a crazy question. In the U.S., hundreds of millions of people (including the populations of 26 of the 100 most populous cities) live within 50 miles of a nuclear reactor. Worldwide, there are 21 nuclear plants that each have more than one million people living within 30 kilometres of them.

Of course, nuclear accidents are thankfully rare. But the risk is not zero, and when an accident does occur, as happened in Fukushima in 2011, people can be understandably reluctant to live in the affected areas due to the risks to their health and wellbeing. Obviously, that has a flow-on impact on house prices, even outside the most heavily affected areas.

Hedonic demand theory (or hedonic pricing), which we discussed in my ECONS102 class last week, recognises that when you buy some (or most?) goods you aren't so much buying a single item but really a bundle of characteristics, and each of those characteristics has value. The value of the whole product is the sum of the value of the characteristics that make it up. For example, when you buy a house, you are buying its characteristics (number of bedrooms, number of bathrooms, floor area, land area, location, etc.). When you buy land, you are buying land area, soil quality, slope, location and access to amenities, etc. You are also buying the exposure to current levels of radiation, as well as the risk of future exposures to radiation in the event of a nuclear accident. If each of those characteristics can be separately valued, then you can place a value on how much people are willing to pay to avoid radiation (or alternatively, how much they are willing to accept to live in a radiation-affected area).

In a new paper in the Journal of Regional Science (sorry I don't see an ungated version anywhere online), Alistair Munro (National Graduate Institute for Policy Studies, Japan) looks at the impact of the Fukushima disaster on house prices in Fukushima and Miyagi prefectures, using data from 2009 to 2017. Fukushima prefecture was most affected by radiation as well as the tsunami that led to the nuclear disaster, while neighbouring Miyagi prefecture was only affected by the tsunami. So, differences between the two in terms of changes in house prices can be attributed to differences in radiation levels (once you control for other characteristics of the properties, of course). He finds that:
...across the subsample of noncondominium residence types a 1 percent rise in radiation leads to a 0.051 percent drop in values, while for condominiums treated separately the elasticity is also 0.051. For housing land the elasticity is 0.044, and 0.032 for land with existing buildings if the age of the building is controlled for.
In other words, areas more affected by radiation have lower house prices. How much lower? Munro reports that:
...using a variety of methods... the impact of radiation translates into a one to two million Yen (US$10,000–20,000)... reduction in housing prices for average residential properties.
That is quite substantial, but is not terribly surprising. However, the next part of the paper is very cool. Having established how much less people are willing to pay for living in an area with more radiation, Munro then uses that information plus information on the risk of cancer arising from environmental radiation, to estimate the value of a statistical life (or VSL).

As I will discuss with my ECONS102 class later this semester, the VSL can be estimated by taking the willingness-to-pay for a small reduction in risk of death, and extrapolating that to estimate the willingness-to-pay for a 100% reduction in the risk of death, which can be interpreted as the implicit value of a life. Munro estimates VSL to be in the region of US$4.5-6.4 million, which is similar to VSL estimated in other studies (and other risk contexts). An additional take-away from that analysis is that there isn't a particularly high element of dread associated with avoiding death from radiation (otherwise, people would be willing to pay more to avoid it, and the estimated VSL would be much higher).

Next we really need to know whether the Fukushima disaster affected people's perceptions of nuclear risk in other areas that are near nuclear plants but which weren't affected by the disaster. That would be much more difficult to establish, but potentially much more interesting.

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