Disaster on the Horizon: The Price Effect of Sea Level Rise
56 Pages Posted: 21 Nov 2017 Last revised: 24 Mar 2018
Date Written: March 19, 2018
Homes exposed to sea level rise (SLR) sell at a 7% discount relative to observably equivalent unexposed properties equidistant from the beach. This discount has grown over time and is driven by sophisticated buyers and communities worried about global warming. Consistent with causal identification of long horizon SLR costs we find no relation between SLR exposure and rental rates, and current SLR discounts are not caused by differential investment, flooding, or views. Overall, we provide the first evidence on how markets price SLR exposure thereby contributing to the literature on how investors price long-run risky cash flows and providing insights for optimal climate change policy.
Keywords: Climate Change, Asset Prices, Beliefs, Sea Level Rise, Real Estate
JEL Classification: G1, G14, Q54
Suggested Citation: Suggested Citation