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Japanese Nuclear Meltdown Could Impact US Home Prices

Topic: Real Estate news

The key to real estate values has always been location, but now the term “location” may be impacted by your home’s distance from the nearest nuclear reactor.

The scenes from Japan are grim and the debate over how far is safe from the six troubled Fukushima nuclear reactors is unsettling. Is the right distance from the facilities 13 miles, or 20 miles or 50 miles? Or maybe 200 miles?

The answer is uncertain in part because as this is written the situation continues to unfold. We are not yet at a point where the run-away reactions have been stopped or contained so it’s not possible to say with confidence how far is far enough.

The question of miles is also important from a real estate perspective. Imagine that mortgage investors suddenly have less interest in buying loans for properties within a given distance to a nuclear plant. Imagine that home buyers decide that when it comes to location, further is better when talking about nuclear sites. In either case large numbers of American homes would be devalued.

Given that the US has 104 nuclear facilities, including 23 similar in design to the Japanese units, are worries about nukes, meltdowns and miles reasonable?

To start, it’s important to say that nuclear plants differ. Most nuclear facilities in the US are simply not on coastal waters and thus could never get hit with a tsunami. Also, within the lower 48 states the largest earthquake recorded after 1700 was estimated to be a 7.9 on the Richter scale, far less powerful than the 9.0 quake which hit Japan. Lastly, US facilities are required to have massive containment structures, something which was crucial in the Three Mile Island incident — and something absent at Chernobyl.

Three Mile Island

In 1979 there was a meltdown at Three Mile Island near Middletown, PA. Here, according to the Nuclear Regulatory Commission, “was the most serious in U.S. commercial nuclear power plant operating history, even though it led to no deaths or injuries to plant workers or members of the nearby community.”

So what happened?

“Because adequate cooling was not available,” says the NRC, “the nuclear fuel overheated to the point at which the zirconium cladding (the long metal tubes which hold the nuclear fuel pellets) ruptured and the fuel pellets began to melt. It was later found that about one-half of the core melted during the early stages of the accident. Although the TMI-2 plant suffered a severe core meltdown, the most dangerous kind of nuclear power accident, it did not produce the worst-case consequences that reactor experts had long feared. In a worst-case accident, the melting of nuclear fuel would lead to a breach of the walls of the containment building and release massive quantities of radiation to the environment. But this did not occur as a result of the three Mile Island accident.”

In the end, the troubled Three Mile Island facility was simply closed. The government reports that “today, the TMI‑2 reactor is permanently shut down and defueled, with the reactor coolant system drained, the radioactive water decontaminated and evaporated, radioactive waste shipped off‑site to an appropriate disposal site, reactor fuel and core debris shipped off‑site to a Department of Energy facility, and the remainder of the site being monitored. In 2001, FirstEnergy acquired TMI-2 from GPU. FirstEnergy has contracted the monitoring of TMI-2 to Exelon, the current owner and operator of TMI-1. The companies plan to keep the TMI-2 facility in long‑term, monitored storage until the operating license for the TMI‑1 plant expires, at which time both plants will be decommissioned.”

Chernobyl

In 1986 a reactor at the Chernobyl facility in the Ukraine blew up. The result was the mass evacuation of hundreds of thousands of people, at least several thousand deaths, the widespread dispersion of radioactive dust and the creation of a 19-mile exclusion zone around the facility.

Notably lacking from the Chernobyl facility was the type of containment structure associated with US nuclear plants, a difference seen at Three Mile Island.

Stigmatized Property

In real estate there’s a concept called stigmatized housing. These are properties which have generally been devalued because while they are in normal physical condition they make people uncomfortable. Such properties might include homes which have been the scene of a murder or suicide, or which are allegedly inhabited by ghosts.

The rules regarding what must or must not be disclosed regarding stigmatized housing vary by state. In one state you may have to tell prospective buyers that a murder took place on the property, in another disclosure may be required but only for a given number of years and while in a third state there may be no disclosure requirement.

Moreover, “stigmatized” may not mean less value. Some people, after all, like ghosts.

Public Choices

Having seen what happened at Fukushima will some people now consciously elect to locate far from nuclear plants? Sure. But the real question is different: Will large numbers of people choose to avoid real estate anywhere close to nuclear facilities?

If the answer is “yes” then we could see a drop in home values for properties near nuclear facilities, however “near” is defined. The catch is that we don’t know the answer. No doubt, as long as the events in Japan dominate news coverage, more and more people will want to stay away from nuclear facilities. We also don’t know what the public will regard as far enough away to be secure, whether the right number will be five miles, 50 miles or more.

In practice it may be difficult to move away from nuclear power. We have nuclear generating facilities that are clustered around major population centers and job hubs. The result is that many homes will continue to be powered with nuclear energy — energy generated not far away.

03/18/2011
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