Does climate risk affect house prices?
In this paper, Keys and Mulder study the relationship between sea level rise (SLR) exposure and changes in housing and mortgage markets from 2001-2020 in the U.S. They use data on home transactions , mortgage applications, and flood insurance all linked to sea level rise forecasts , and examine the mechanisms through which the increasing salience of SLR exposure over this period may have affected housing and mortgage markets. They find that sales in high-risk areas have fallen in absolute terms since 2013, while sales in low-risk coastal areas rose between 2013-2018. In contrast, relative home prices follow volumes with a lag as they increased for both groups from 2013-2016, with a relative decline in the high-risk tracts only beginning to emerge in 2018.
In order to assess whether there is indeed a direct relationship between climate risk and trends in housing markets, the authors use a difference-in-difference framework for the period from 2001-2018 with data from the coastal Florida market. Some of their conclusions:
- The volume and price declines are concentrated in SLR-exposed markets located in counties where Yale Climate Opinion Survey data show more residents are worried about climate change;
- Transaction volumes begin to decrease in SLR-exposed markets in 2013 as a confluence of events focused public attention on climate risk;
- Heightened SLR risk awareness has made prospective homebuyers more wary of at-risk coastal markets, but lenders have been relatively unresponsive. Keys and Mulder argue that lenders are protected by federal programs that actively mis-price climate risk.
Neglected No More: Housing Markets, Mortgage Lending, and Sea Level Rise
Authors: Benjamin J. Keys, Philip Mulder
From: The Wharton School – University of Pennsylvania
