Disaster on the Horizon: The Price Effect of Sea Level Rise
40 Pages Posted: 21 Nov 2017 Last revised: 6 Dec 2017
Date Written: December 2, 2017
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, (1) we find no relation between SLR exposure and rental rates, (2) despite decreased remodeling among exposed homeowners, current SLR discounts are not caused by differential investment, (3) results hold controlling for flooded properties and views. Overall, we provide the first evidence on the price of SLR risk and its determinants. These findings contribute to the mixed literature on how investors price long-run risky cash flows and have implications 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