The effect of land subsidence on real estate values

Abstract

Land subsidence in the Netherlands, mainly occurring in its western and northern peat and clay soils, causes significant damage to houses and infrastructure, estimated at EUR17 billion until 2050, through differential settlement of shallow foundations, negative skin friction and fungal decay of timber piles. Various studies and reports both in The Netherlands and abroad have addressed the potential economic impacts of subsidence on houses: yet, these studies lack spatially detailed data and instead rely on generic assumptions on expected damage restoration costs. By using a hedonic pricing model, this study examines the impact of subsidence on housing prices in the Dutch cities of Rotterdam and Gouda. In contrast to earlier studies, subsidence and its impact on property values are examined at house level. We test for the effect of subsidence with data related to (i) general (uniform) subsidence (mm yr-1), (ii) differential subsidence of a building and (iii) subsidence of the surrounding area in relation to the house. Results show that uniform subsidence has the largest impact on property values with approximately -6 %, while differential and surrounding subsidence show respectively -2% and no effect. These results could prove useful to policymakers, homeowners and housing corporations by generating a better understanding of the impact of subsidence on property values and subsequently to create awareness and spur investments in measures to mitigate damage. It should be noted that these results are specific to the research area are therefore not immediately scalable to other cities as local conditions differ.