Judging a house by its cover: Leaky building stigma and house prices in New Zealand

Abstract

Purpose

The purpose of this paper is to quantify leaky building stigma associated with monolithic claddings, explore how this stigma has likely been amplified by media coverage, estimate the number of affected properties and quantify the collective house price impact on homeowners of monolithic‐clad dwellings in the Auckland region.

Design/methodology/approach

Residential sales transaction data organised in two subgroups (single‐family houses and multi‐unit dwellings) from 1997 through 2006 are analysed using a series of annual hedonic pricing models to empirically test for the presence of stigma. This is coupled with a descriptive analysis of leaky building media coverage to understand how this coverage may be influencing the stigma.

Findings

The empirical results show that a leaky building stigma exists and is discounting prices of the Auckland Region's monolithic‐clad single family houses by 5 per cent and multi‐unit dwellings by 10 per cent. Approximately 37,500 monolithic‐clad dwellings have been built in the region since 1992 and their homeowners have suffered an estimated $1 billion reduction in property values due to leaky building stigma.

Research limitations/implications

Although leaky building stigma primarily relates to monolithic claddings, this stigma reflects elevated weathertightness risks associated with several Mediterranean‐style architectural features.

Practical implications

The study's findings can be directly applied to residential valuation practice and can assist the New Zealand government more accurately assess the full economic cost of the nation's leaky building problem.

Originality/value

This research provides an initial empirical study on stigma associated with leaky building syndrome. The findings offer direction to further research on other domestic and international housing markets that are experiencing similar stigma phenomenon.

Citation

Rehm, M. (2009), "Judging a house by its cover: Leaky building stigma and house prices in New Zealand", International Journal of Housing Markets and Analysis, Vol. 2 No. 1, pp. 57-77. https://doi.org/10.1108/17538270910939565