Earthquake risk reduction and residential land prices in Tokyo

This paper examines whether reducing earthquake risk has positive direct and spillover effects on residential land prices in Tokyo, where the central and metropolitan governments have promoted urban development for earthquake risk reduction. We use two types of earthquake risk measurement: (1) Tokyo’s assessments of community earthquake risk—building collapse risk, fire risk, and combined risk in the years 2002, 2008, 2013, and 2018; and (2) dense urban districts with extremely high risk from earthquakes (DUDs) in 2012, 2015, 2016, and 2017. Our analysis uses spatial panel data models. The results of the standard fixed-effects models (without spatial lags) show that a reduction in all our earthquake risk measures increases land prices. Moreover, the results of the spatial fixed-effects models demonstrate that a reduction in fire risk, combined risk, and DUDs increases land prices not only in a lot’s own district, but also in neighboring districts, suggesting that fire risk mitigation has a positive spillover effect. The total effects in the spatial fixed-effects models are greater than the marginal effects in the standard fixed-effects models, highlighting the importance of addressing spillover effects. Our findings shed new light on the benefits of urban development for earthquake risk reduction.