Unnatural deaths and apartment prices

If you were looking to buy a house, and you found out that someone had recently died an unnatural death in the house, would that affect what you are willing to pay for the house? I suspect it would for many people, being a negative characteristic of the house. Based on hedonic demand theory, which my ECONS102 class briefly covered this week, negative characteristics reduce the overall price of the good. 

How does that work? Hedonic demand theory 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.). You are also buying the characteristic of whether the house has had a recent unnatural death, or not. When you bundle all of the characteristics' values together, you get the value of the house.

So, does an unnatural death really reduce house prices? That is the research question addressed in this 2018 article by Zheng Chang (City University of Hong Kong) and Jing Li (Singapore Management University), published in the journal Regional Science and Urban Economics (ungated earlier version here). They use housing unit (mostly apartments, I guess) sales data from Hong Kong housing estates between 2001 and 2015, and first note that:

Influenced by Taoism, traditional Chinese believe that people who died as a result of violence or unnatural events can become “ghosts” who can disturb successive occupants through various means... Housing units in which unnatural deaths have occurred are called “haunted units,” which are regarded as bad Feng Shui, and are unsuitable for habitation...

So, the expectation is that a recent unnatural death will reduce house prices. Comparing houses with and without a recent unnatural death (and controlling for housing unit characteristics), Chang and Li find that:

...housing values drop about 25% for units with deaths, 4.5% for other units on the same floor, 2.6% for other floor units in the same building, and 1% for units in other buildings of the same estate. However, the average house price of units in other estates within 300m increases 0.5%. For units with deaths, the price decline is sustained across the whole study period. The price impact on units in other geographic scopes follows a U shape and starts to reverse after 4–5 years of a death.

In other words, there is evidence for a sustained negative impact of an unnatural death on housing unit prices, as well as a shorter-term impact on surrounding housing units. Even having a housing unit on the same floor, or in the same building, as the unit where there was a recent unnatural death, is enough to lower the housing unit's price. Sometimes, superstition matters for consumer preferences.