Changes in Risk Appreciation, and Short Memory of House Buyers When the Market is Hot, a Case Study of Christchurch, New Zealand

Paper: arXiv 2307.13232

Authors: Emil Mendoza, Fabian Dunker, Marco Reale

Abstract

In this paper house prices in Christchurch are analyzed over three distinct periods of time: post-2011 earthquake, pre-COVID-19 lockdown, and post-COVID-19 lockdown using the well-established hedonic price model. Results show that buyers, in periods that are temporally distant from the 2011 Christchurch earthquake, value the risk of potential earthquake damage to a property differently from buyers soon after the earthquake. We find that there are observable shifts in hedonic prices across the different time periods, specifically for section size pre and post COVID-19 lockdown.

Complexity vs Empirical Score

• Math Complexity: 3.5/10
• Empirical Rigor: 6.5/10
• Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper uses standard empirical econometric models (hedonic pricing) rather than complex advanced mathematical derivations. Its strength lies in evaluating real-world market behavior across distinct temporal regimes (post-earthquake and post-COVID), providing interesting behavioral insights into risk appreciation in real estate.

Research Flowchart

  flowchart TD
    A["Research Goal:<br>Analyze house buyer risk appreciation & memory of 2011 earthquake over time"] --> B["Data Inputs:<br>Christchurch house prices across 3 periods<br>(Post-2011 EQ, Pre-COVID, Post-COVID)"]
    B --> C["Methodology:<br>Hedonic Price Model"]
    C --> D["Computational Process:<br>Regression analysis for structural shifts in valuation across time periods"]
    D --> E["Key Finding 1:<br>Buyers value EQ risk lower as time from event increases (Short Memory)"]
    D --> F["Key Finding 2:<br>Observable shifts in section size valuation pre vs. post-COVID"]