Journal
CONSTRUCTION MANAGEMENT AND ECONOMICS
Volume 25, Issue 11, Pages 1119-1126Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
DOI: 10.1080/01446190701618299
Keywords
Natural disasters; prices; tornado shelters; mitigation; multiple regression
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Mitigation against natural hazards often involves long-lived, immobile investments. Home owners must be able to capture the present value of future benefits to equate the private and societal return on mitigation. The capitalization of mitigation into home prices thus is crucial for home owners to have a proper incentive for mitigation. We investigate the existence of a premium for tornado shelters using home sales in Oklahoma City, where the deadly tornado outbreak of 3 May 1999 and the Oklahoma Saferoom Initiative increased public awareness of tornado shelters. We find that a shelter increases the sale price of a home by 3.5% to 4% or approximately $4200 given the mean price of homes sold in 2005. The magnitude of the premium is plausible given that shelters retail for $2500-$3000 installed.
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