Schocking effects of gas extraction on houseprices
Marnix Hazelhoff
17 february 2025
Reading time 5 minuten
Koster, H. R. A., & Van Ommeren, J. (2015). A shaky business: Natural gas extraction, earthquakes, and house prices. European Economic Review, 80, 120-139
Gas extraction, particularly in Groningen, has led to earthquakes that impact the housing market. This article examines how these seismic activities affect property prices and sales, and what this means for both buyers and sellers.
Monetary and Non-Monetary Damage
Monetary damage
This refers to physical damage to homes in areas affected by earthquakes. Structural issues such as cracks in walls, foundation problems, and other visible defects reduce property value. Homeowners can apply for compensation to cover repair costs.
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Non-monetary damage
This refers to the decrease in property values in areas affected by earthquakes. Even without visible physical damage, homes in these regions can lose value due to:
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Negative perception of the area and the housing market
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Increased risk associated with gas extraction and potential future earthquakes
Currently, this type of damage is not or only partially compensated, leaving homeowners with financial losses despite the absence of direct structural damage.
The impact of gas extraction
Decline in property values
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Earthquakes with a peak ground acceleration above 0.5 cm/s have a noticeable impact on property values, as they increase the risk of damage and future costs.
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Homes in areas affected by noticeable earthquakes lose an average of 1.9% of their value, despite compensation schemes for physical damage.
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Buyers take earthquake risks into account when making purchasing decisions, leading to lower demand and declining house prices.
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Loss of confidence in the housing market
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Even when full compensation for physical damage is provided, house prices continue to fall.
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Buyers and investors lose confidence in the stability and habitability of affected areas, further reducing demand.
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Uncertainty about policies and compensation plays a major role, as it remains unclear how future risks and costs will be addressed.
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Conclusion
The distinction between monetary and non-monetary damage is crucial for a full understanding of the impact of gas extraction on homeowners. While compensation schemes cover the repair of physical damage, the decline in property values remains an overlooked and often uncompensated issue. This results in financial disadvantages for homeowners who see their property value decrease without adequate reimbursement.
