The Impact of Emerging Climate Risks on Urban Real Estate Price Dynamics

21 Pages Posted: 31 Mar 2014 Last revised: 28 Sep 2014

See all articles by Devin Michelle Bunten

Devin Michelle Bunten

MIT

Matthew E. Kahn

University of Southern California; National Bureau of Economic Research (NBER)

Date Written: March 2014

Abstract

In the typical asset market, an asset featuring uninsurable idiosyncratic risk must offer a higher rate of return to compensate risk-averse investors. A home offers a standard asset's risk and return opportunities, but it also bundles access to its city's amenities|and to its climate risks. As climate change research reveals the true nature of these risks, how does the equilibrium real estate pricing gradient change when households can sort into different cities? When the population is homogeneous, the real estate pricing gradient instantly reflects the "new news". With population heterogeneity, an event study research design will underestimate the valuation of climate risk for households in low-risk cities while overestimating the valuation of households in high-risk areas.

Suggested Citation

Bunten, Devin Michelle and Kahn, Matthew E., The Impact of Emerging Climate Risks on Urban Real Estate Price Dynamics (March 2014). NBER Working Paper No. w20018. Available at SSRN: https://ssrn.com/abstract=2418133

Devin Michelle Bunten (Contact Author)

MIT ( email )

77 Massachusetts Avenue
Cambridge, MA 02139
United States

HOME PAGE: http://www.devinbunten.com

Matthew E. Kahn

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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