Shooting and buying

Terrorism and war have generally been associated with loss of life and property value. Yet there has been little research into the economic impact, the direct and indirect damage caused, when the hostilities continue over a long time.

Hence the importance of a research project conducted at the Technion Institute of Technology in Haifa, which looked into how the sporadic gunfire spraying the Jerusalem neighborhood of Gilo during the second intifada impacted housing prices there.

Gilo is located on the hills of southern Jerusalem, and sits next door to the Arab town of Beit Jala. The gunfire attacks on apartments in Gilo started st the beginning of the second intifada in late September 2000.

The gunfire continued until Operation Defensive Shield in May 2002 (though the date the intifada itself ended is a matter of dispute). During the year following Defensive Shield, there were only three incidents of gunfire on homes in Gilo.

The research team consisted of Danny Ben-Shahar and Yuval Arbel of the Technion's Faculty of Architecture and Town Planning, Yossi Tobol of Ariel University's Economics and Business Administration department, and Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA.

They studied the correlation between incidents of the gunfire which did not lead to loss of life or damage to property and property values in the besieged neighborhood.

They did find a correlation showing the attacks impacted housing prices. Then they tried to measure the magnitude of the impact over time, by analyzing 555 transactions in Gilo during the years 1997 to 2008, in which apartments of 3.5-4 rooms changed hands.

(The data are from the capital gains tax authorities and real estate appraisers.)

Gilo is hardly the only neighborhood or town in Israel to bear the scars of conflict. Others suffered not sporadic gunfire but missile and mortar attacks as well. During the Second Lebanon War, Israel's northern towns - including Haifa, Kiryat Shmona and Nahariya - were peppered by missiles, causing loss of life and property damage. In southern Israel, many towns also suffered from rocket fire before last winter's Operation Cast Lead.

And while all's quiet on both the southern and northern fronts today, the threat persists.

During the periods of attack, housing prices do fall. But the decline is erased after a while.

For instance, the Second Lebanon War was in 2006 but housing prices in Haifa and the southern cities have been rising since 2008. The real estate market seems to have a fairly short memory for barrages of missiles.

Yet the study on Gilo by the team of researchers is the first that properly sets out to deeply investigate the effect of such bloody events on housing prices and it found nuances.

The researchers found the price dynamic on streets that face Beit Jala differ from streets that do not face the Arab town.

The decline in housing prices on the streets not exposed to Beit Jala disappeared over time, returning to pre-intifada levels. However, pricing levels on streets that face Beit Jala did not recover during the period the investigators examined (up to 2008).

The conclusion is that the memory of the traumatic events continues, says Ben-Shahar.

In the six months after the gunfire attacks on Gilo began, housing prices fell by 9.8%. About four months after the attacks stopped, housing prices had recovered up to 80% of their value. Recovery, at least in the streets not facing Beit Jala, was complete within a year and a half.

The effect of the gunfire on Gilo can also be felt through comparison to housing prices in Jerusalem in general. To do that one needs to compare home prices before the intifada (1997 to 2000), with housing prices after the start of the intifada (2000-2008).

We find that average housing prices of apartments with 3.5-4 rooms increased by 13.7% in Jerusalem as a whole, while in Gilo the increase was 0.8%.

On the streets with homes that had been hit by gunfire, prices never did recover, at least during the period the researchers studied - through to last year. The difference in price between streets that face Beit Jala and streets that do not, is about 8.5%, calculates Ben-Shahar.

"The gunfire did stop. But there's a reinforced wall still in place that's pretty ugly, in my opinion, which reminds you that you're on dangerous ground, in theory," he said.

Also, deals are slower to close on the streets facing the Arab town. After insurgents began taking pot-shots at Gilo, only 19% of the transactions to close were on streets facing Beit Jala, compared with 47% before the intifada began.

Overall though, the study, however groundbreaking in intent, does not provide a clear picture. You can't reach sweeping conclusions about how negative events, like snipers aiming at a neighborhood, will affect home prices over time. But the research does provide an indication of a trend say, says Ben-Shahar.

One could take advantage of the study when seeking property for investment. As the Baron de Rothschild said more than a century ago, in a perhaps slightly different context: The time to buy is when there's blood running in the streets.