Stigma assessment: the case of a remediated contaminated site

AuthorSandy Bond
Publication Date01 Apr 2001
Journal of Property Investment &
Finance, Vol. 19 No. 2, 2001,
pp. 188-210. #MCB University
Press, 1463-578X
Received August 2000
Stigma assessment: the
case of a remediated
contaminated site
Sandy Bond
Massey University, Auckland, New Zealand
Keywords Contamination, Legal remedies, Property management, Modelling
Abstract The ``stigma'' associated with remediated contaminated land is the blighting effect
on property value caused by perceived risk and uncertainty. Uncertainties relate to negative
intangible factors such as the inability to effect a total ``cure'', the risk of failure of the remediation
method, the risk of changes in legislation or remediation standards, the difficulty in obtaining
finance, or simply a fear of the unknown. Post-remediation ``stigma'' is the residual loss in
value after all costs of remediation, including insurance and monitoring, have been allowed for.
It equates to the difference in value between a remediated contaminated site and a comparable
``clean'' site with no history of contamination. The initial results from a study of the market sales
data of post-remediated vacant residential land along the Swan River, in Perth, Western
Australia, from 1992-1998 are summarized. The aim of this ongoing research is to estimate
the amount of ``stigma'' arising from a site's contamination history and measure the effect of
this on residential property values of remediated property. The results show that while a
site's contamination history impacts negatively on property prices, the price decreases are offset
by the positive influence on price from additional amenities provided in the case study
Introduction: background to the research problem
It was the introduction of legislation within Australia (the State enacted, for
example, the Environmental Protection Act 1986, in Western Australia) and
New Zealand (The Resource Management Act 1991) that brought contaminated
land issues to the attention of valuers in Australasia. This legislation has
highlighted the need for valuers to take contamination issues into account in
estimates of value. However, uncertainty exists as to the effect contamination
will have on property values, due mainly to a paucity of contaminated property
sales data together with the lack of clarity within the legislation over legal
liability for polluting.
Up until the early 1990s an ad hoc approach had been taken in Australasia
toward the assessment and management of contaminated sites, resulting in
a range of standards being applied. This is slowly changing with the
introduction of new legislation or amendments to existing legislation. However,
until this occurs, the position for lenders, equity investors and valuers remains
Coupled with these legislative uncertainties are:
.the difficulty in identifying if contamination exists on a site;
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papers: Stigma
.the specialized skills required to determine the extent of contamination
and the costs of remedying it once it has been identified;
.identifying the presence, magnitude and duration of any post-
remediation stigma[1] is problematic mainly due to the absence, or
limited availability, of market sales data.
These are the problems that the valuers have had to face when valuing
property known, or suspected, to be either currently or previously
Brief literature review
A growing body of literature has emerged in the USA dealing with the
valuation of contaminated land, more so than in the UK, New Zealand or
Australia partly owing to the much earlier introduction of legislation in that
country. Much of the early literature dealing with the issues of contaminated
land focused on the financing difficulties and associated impacts on the value
of commercial property. Those that relate to valuation methodology again
focus on commercial property and what is ``proper'' valuation methodology.
Others document the practices of valuers (e.g. Lizieri et al., 1995; Dixon, 1995;
Richards, 1995; 1997; Syms, 1994; 1995; 1996; Kennedy, 1997; Bond, 1998; Bond
and Kennedy, 2000; Kinnard and Worzala, 1998).
The concept of environmental ``stigma'' while first emerging in the valuation
literature in the late 1980s (see, for example, Kinnard, 1989; 1990; Mundy, 1988;
1989; Patchin 1991; 1992) has been difficult to quantify, with some valuers
ignoring it altogether. For example, only a few of the valuers surveyed by
Dixon (1995), Richards (1995) and Kennedy (1997) use an adjustment for
environmental stigma. However, their adjustments tend to be subjective (a
yield or capital value adjustment). Syms (1996) criticizes such an approach and
suggests an alternative methodology. He believes that understanding the risk
perceptions of the property market actors is necessary to facilitate the
construction of a valuation model for contaminated land that will enable stigma
to be assessed.
Following Slovic's (1992) approach, Syms (1997) uses the psychometric
approach to compare the risk perceptions of members of the general public,
valuation professionals and other professionals involved in the redevelopment
process toward known and unknown risks. Using this information the scale of
the required value adjustment to reflect environmental stigma is quantified.
While Syms also utilizes other stigma-adjustment factors when quantifying
stigma, he averages these. Given that each ``value adjuster'' relates to either the
use of the site, the different stages of the redevelopment process, or the
treatment method, the logic behind averaging such figures is questionable,
particularly where the stigma-adjustment factors vary widely. For example,
in the first case study Syms presents to demonstrate the model this range
was from 2.5 per cent to 90.38 per cent. This variability of stigma estimates

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