Do Wind Hazard Mitigation Programs Affect Home Sales Values?

Abstract

The FORTIFIED Home Program is a voluntary construction and re-roofing program designed to strengthen residential properties to withstand damages from severe weather events. The FORTIFIED designation framework can accommodate sustainable new home construction and existing property retrofitting efforts. Applying a two-state utility framework to Zillow’s ZTRAX and IBHS’s FORTIFIED designation data, we estimate the effect of a FORTIFIED Home designation on residential property values using sales transactions for coastal Alabama from 2011 to 2021. We add to the growing body of literature examining the relationship between eco-friendly construction applications and home prices by deriving the contribution of a FORTIFIED designation to enhanced risk reduction and lowered insurance costs. The results of our full- and nearest-neighbor-matched sample design suggest a likely price premium significance on the order of 2-4% for FORTIFIED homes.

Keywords:

• FORTIFIED Home Program
• sustainability
• green design
• wind hazard-mitigation
• hedonic price model
• residential property values
• building certifications

Authors’ Note

Data provided by Zillow through the Zillow Transaction and Assessment Dataset (ZTRAX). More information on accessing the data can be found at http://www.zillow.com/ztrax. The results and opinions are those of the authors and do not reflect the position of Zillow Group

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Notes

1 A related strand of the literature focuses on consumer behavior associated with hazard mitigation choices, including Done, Simmons, and Czajkowski (2018); Burrus et al. (2002); Carson, McCullough, and Pooser (2013); Dehring and Halek (2013); Kleindorfer and Kunreuther (1999); Jasour et al. (2018); Peacock (2003); and Petrolia et al. (2015).

2 We use Zillow’s ZTRAX dataset, a nationwide dataset of property transactions available to researchers at no cost. Note, however, that Zillow recently announced plans to discontinue the ZTRAX program, effective September 30, 2023.

3 For example, among others, see Affuso et al., 2018; Bao & Wan, 2007; Dahal et al., 2019; Farmer & Lipscomb, 2010; Lipscomb, 2004; Peterson & Flanagan, 2009; Osland, 2010; Sirmans et al., 2005; Shultz, 2018; Shultz & Schmitz, 2009; Wolverton & Senteza, 2000; and, Wyman & Worzala, 2016.

4 Fortified home features could represent multiple attributes. In this case, we can present $\mathrm{L}$ and $\mathrm{P}$ as a function of multiple attributes; inclusion of multiple attributes, however, does not change or affect our final model.

5 In MacDonald et al. (1987), both $\mathrm{L}$ and $\mathrm{P}$ are assumed as known constants. Awondo et al. (2019) also derive a similar extension to ours, but their model includes FORTIFIED home costs and assumes full insurance coverage only. In our model, we conceptualize the ex-post attributes to buyers only and the role of the FORTIFIED home features in $\mathrm{L}$ and $\mathrm{P}.$

6 (MacDonald et al., 1987).

Additional information

Funding

We thank the staff at the Insurance Institute for Business & Home Safety for providing access to the FORTIFIED dataset and Lars Powell for his assistance in obtaining it. We also thank the staff at Smart Home America and the Mississippi-Alabama Sea Grant Consortium for their assistance throughout this study. This publication was supported by the U.S. Department of Commerce's National Oceanic and Atmospheric Administration under NOAA Award NA18OAR4170080 and the Mississippi-Alabama Sea Grant Consortium. This work was also supported by the National Institute of Food and Agriculture and the Mississippi Agricultural and Forestry Experiment Station via Multistate Project W-4133 “Costs and Benefits of Natural Resources on Public and Private Lands: Management, Economic Valuation, and Integrated Decision-Making” (Hatch Project MIS-033140). The views expressed herein do not necessarily reflect the views of any of these organizations.