Does Climate Change Affect Real Estate Prices? Only If You Believe in It

55 Pages Posted: 11 Sep 2018 Last revised: 4 Sep 2019

See all articles by Markus Baldauf

Markus Baldauf

University of British Columbia (UBC) - Division of Finance

Lorenzo Garlappi

University of British Columbia (UBC) - Sauder School of Business

Constantine Yannelis

New York University Leonard N. Stern School of Business; University of Chicago Booth School of Business

Date Written: August 30, 2019

Abstract

This paper studies whether house prices reflect belief differences about climate change. We show that in an equilibrium model of housing choice in which agents derive utility from ownership in a neighborhood of similar agents, prices exhibit different elasticities to climate risk. We use comprehensive transaction data to relate prices to inundation projections of individual homes and measures of beliefs about climate change. We find that houses projected to be underwater in believer neighborhoods sell at a discount compared to houses in denier neighborhoods. Our results suggest that house prices reflect heterogeneity in beliefs about long-run climate change risks.

Keywords: Heterogeneous beliefs, climate change, real estate prices

JEL Classification: E50, G40, G11

Suggested Citation

Baldauf, Markus and Garlappi, Lorenzo and Yannelis, Constantine, Does Climate Change Affect Real Estate Prices? Only If You Believe in It (August 30, 2019). Available at SSRN: https://ssrn.com/abstract=3240200 or http://dx.doi.org/10.2139/ssrn.3240200

Markus Baldauf (Contact Author)

University of British Columbia (UBC) - Division of Finance ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Lorenzo Garlappi

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Constantine Yannelis

New York University Leonard N. Stern School of Business ( email )

Suite 9-160
New York, NY
United States

University of Chicago Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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