Do nearby forest fires cause a reduction in residential property values?

An increasingly relevant question for policy is how risk perceptions of a natural disaster are affected by the occurrence of such an event. A town in Colorado that was two miles from a large wildfire was used as a case study to examine how an increased risk perception could lead to changes in housing desirability for that area. An analysis of both pre- and post-fire sale prices was used to determine if buyers and sellers increased their risk perception due to the nearby fire. Even though the town itself remained unburnt, housing prices still dropped 15%. This finding is consistent with the results of other studies showing decreased property values after other natural disasters. Results from the study suggest home buyers and sellers revise upward their perceptions of fire risk after a major fire. The author also hypothesized that a loss in forest amenity value (e.g. burned trees) in the broader geographic area may have also influenced the property value decrease. This change happens despite the effects of the forest fire not being visible from individual properties. These factors combine to lower the desirability to live in the forest, thereby decreasing property values. Finally, the study serves as an example of the housing market in the wildland urban interface beginning to reflect the increased hazards of living in high-amenity forests. The author posits the study results as reason to advise Congress and the Federal Emergency Management Agency to not compensate homeowners for the post-fire decrease in property values. Such compensation weakens the disincentive to building homes in high amenity, high hazard environments.