The Effects of Environmental Contamination on Commercial and Industrial Property Values: Do Perceptions Matter?

• Main Author: Grigelis, Peter Edward
• Format: Others
• Published: Digital Archive @ GSU 2005
• Subjects: property values; hedonic; contamination; Economics
• Online Access: http://digitalarchive.gsu.edu/econ_diss/7; http://digitalarchive.gsu.edu/cgi/viewcontent.cgi?article=1006&context=econ_diss

The effects of severely contaminated properties (e.g. NPL sites) on residential property values are well documented. However, most contaminated sites are not so severe to warrant placement on the NPL, and little is known about the impacts to commercial and industrial property markets. Furthermore, perceptions may be developed about different types of land-uses as a result of information made public about sites placed on lists. If perceptions matter, then properties with no known contamination may be viewed as undesirable neighbors in a way similar to listed sites. Therefore, property value impacts could be even more substantial as compared to only the impacts of known contaminated sites. The economic impacts of known and perceived environmental contamination are quantified by estimating two sets of hedonic property value models using data on commercial and industrial property sales for Fulton County, Georgia. Sites listed on the EPA’s CERCLIS and NFRAP reports and the Georgia EPD’s HSI and NonHSI reports are utilized to estimate the impacts of known environmental contamination. The impacts from perceived contamination are estimated utilizing a set of properties that are identified by an ordered probit model that computes the probability commercial and industrial properties may be contaminated. The probability of contamination model is built on factors that are assumed to be key signals to investors in forming their perceptions about the likelihood commercial and industrial properties may be contaminated. Property value losses due to known contamination were estimated at slightly over $1 billion and potential losses from perceived contamination were near $663 million. Although estimated property value impacts are not equivalent to expected gains that may result from the remediation of all contaminated sites, the magnitude of the estimated losses suggests that significant gains can be achieved if property values recover by only a fraction. Policies could be implemented that prioritize site remediation to target minority and/or economically depressed areas to help spur economic development. Potential increases in the tax base would result in greater property tax revenues for the provision of public services for the community and new economic development could help provide access to new jobs for local residents.