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89 Tul. L. Rev. 79 (2014-2015)

handle is hein.journals/tulr89 and id is 89 raw text is: Guarding the Subjective Premium: Condemnation Risk Discounts in the Housing Market Sebastien Gay* Nadia Nasser-Ghodsit We propose the condemnaton nsk discount theory, wheirby home buyers deduct a discount from housing prices in the absence of insurance against the risk that the government will condemn theirproperty forprivate tansfer Home owners cannot separate out the negative nisk that their home will be condemned from the positive effect that high-value redevelopment projects may have on the surrounding area. There are, consequently, competing effects of the risk ofeminent domain on fair market value. I. INTRODUCTION .......................................................................... 80 II. HoME VALUATION-AN ECONOMIC FRAMEWORK .................. 82 A. Subjective Premium ........................................................ 82 B. Condemnaton Risk Discount ......................................... 84 C Relevant RealEstate Market ......................................... 89 Ill. PRICING EFFECTS OF KELO V CITY OF NEWLONDONAND SUBSEQUENT STATE RESPONSES ................................................... 93 A. Kelo v. City of New London ............................................ 93 B SubsequentState Legislation .......................................... 95 C LocalLegisladve Responses .......................................... 98 IV EMPIRICAL ANALYSIS ................................................................... 100 A . D ata ..................................................................................... 100 1. Housing Price Index .................................................. 100 2. Judicial and Legislative Variables ............................. 101 3. Additional Controls ................................................... 104 B. Estimation of the Impact of Kelo on Housing Pices ...... 106 C Estimation of the Impact ofState Responses to Kelo on H ousing Prices .............................................................. 108 © 2014 Sebastien Gay and Nadia Nasser-Ghodsi. * Lecturer at the University of Chicago Department of Economics. t Bigelow Fellow and Lecturer in Law at the University of Chicago Law School. We are grateful to Lee Fennell (University of Chicago Law School), Victor Lima (University of Chicago Department of Economics), and Azeem Shaikh (University of Chicago Department of Economics) for their invaluable feedback. We would also like to thank Legislator Shannon LaFrance for her helpful insights on state and local legislative activities in New York following Kelo v City ofNew London. 79

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