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Environmental Legislation, Real Estate Appraisal and Investment in the UK

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This paper considers the behavior of actors in real estate markets in the face of environmental uncertainty. Environmental legislation has increased in scale and scope with obvious implications for property markets. Developers, investors, occupiers, and lenders may all be affected by changing environmental standards. Any factor that creates valuation uncertainty will have major impacts. Blighted sites and properties will be shunned, while existing real estate portfolios will be adversely affected. A survey of UK property practitioners on their attitudes to environmental hazard reveals that firms seem pessimistic as to their ability to quantify and model the economic and investment implications of environmental risk. There are concerns here for the wider economy and for the business community through supply-side constraints and suboptimal location. There are implications, too, for local and regional regeneration strategies as whole areas may be blighted by potential contamination. There may be mispricing and arbitrage opportunities in relation to such assets that can be exploited through first mover advantage by firms willing and able to develop effective risk-sensitive appraisal models.
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Document Type: Research Article

Affiliations: University of Reading, UK

Publication date: December 1, 1997

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