‘Earthquake prone’ buildings fall in value – Expert reaction

Placing an official  ‘earthquake prone’ sticker on a commercial building lowers its value. However, buildings which are equally earthquake prone, but not yet officially declared to be, don’t suffer the same drop in sale price, according to new new research.

images_earthquake_01.jpgThe findings come from a new study from Motu Economic and Public Policy Research and GNS Science which shows that if a commercial building is declared officially ‘earthquake prone’ its sale price falls on average 45 percent.

However, if a building has yet to be yellow or red stickered, but an engineer’s examination would find it earthquake-prone, the discount does not eventuate. The authors say this result “came as a real surprise.”

You can read more in this release from Motu Economic and Public Policy Research.

The Science Media Centre collected the following expert commentary from New Zealand researchers.

 Dr Geoff Thomas, Senior Lecturer Structures and Fire Safety, School of Architecture, Victoria University of Wellington, comments:

“It is unsurprising that having a building legally determined as “earthquake prone” reduces it value. However the bigger impact since the Canterbury earthquakes may be due to a higher level of awareness of the likely future costs in remediation as well as tenants now selecting buildings to occupy based in part on the level of earthquake resistance. This was rare prior to the Christchurch earthquakes.

“Now there is a financial impact both from strengthening or demolition and replacements costs, and a reduction in potential rental income from lower rents or long periods of vacancy  until such time as a building is strengthened.

“In my experience few commercial building buyers carry out significant checks on likely future compliance costs for buildings they are looking at buying, and this includes fire safety and access and facilities for the disabled – requirements that will be triggered by building work requiring a consent, or a change of use of the buildings – as well as potential earthquake strengthening costs.  Many of those that do investigate these requirements, tend to discount their impacts.

“Given time after disasters, their impact on public perceptions of that particular risk is reduced.  This is often seen in many areas that have been flooded, where after about 10 years, and without any controls, buildings and other structures start to be rebuilt on the flooded areas.  It is ironic that some of the strengthening work being carried out at present  has resulted in damage to other safety systems in buildings such as fire rated walls and floors, where the risk of fatality from a fire in a commercial building is at a similar level to that of a fatality from an earthquake. ”

Prof Jason Ingham, Flagship leader for QuakeCoRE ‘s earthquake prone buildings project and Professor of Structural Engineering, University of Auckland, comments:

“As noted by the authors, it is already understood that when a building is registered as being earthquake prone then it becomes a less appealing commercial asset and this is reflected in falling sales prices.

“It is also understood that different classes of organisations have different approaches to how they address earthquake prone buildings, and we have seen that large corporates may have a blanket policy to withdraw from all earthquake prone premises, whilst smaller businesses often lack the time and resources to react to these issues and are more likely to respond only when legally required to.

“What is encouraging is that the authors have undertaken an economic analysis that has generated comparable findings to those that have been obtained when directly surveying owners and tenants of earthquake prone buildings.

“QuakeCoRE is well aware of the multi-disciplinary nature of how earthquake prone buildings impact the lives of owners, tenants and communities, and has been encouraging research that aids in better understanding how loss of equity associated with earthquake prone buildings impacts on communities.

“Our preliminary understanding is that the impacts vary regionally depending on local conditions, and I have been informed of very significant impacts in cities such as Wanganui that have a high proportion of historic character buildings that are potentially earthquake prone.

“The findings in this report will therefore contribute to our understanding of how to best develop regional and national policies to tackle the risk associated with earthquake prone buildings in a manner that recognises the economic pressures on individuals and communities.”