Who Cares? Future Sea-Level-Rise and House Prices

36 Pages Posted: 19 Apr 2019

See all articles by Olga Filippova

Olga Filippova

University of Auckland - Department of Property

Ilan Noy

Victoria University of Wellington

Cuong Nguyen

Victoria University of Wellington - School of Economics and Finance

Michael Rehm

University of Auckland

Date Written: 2019

Abstract

Globally, the single-most observable, predictable, and certain impact of climate change is sea level rise. Using a case study from the Kapiti Coast District in New Zealand, we pose a simple question: Do people factor in the warnings provided by scientists and governments about the risk of sea-level rise when making their investment decisions? We examine the single most important financial decision that most people make – purchasing a home, to see whether prices of coastal property change when more/less information becomes available about property-specific consequences of future sea level rise. The Kapiti Coast District Council published detailed projected erosion risk maps for the district’s coastline in 2012 and was forced to remove them by the courts in 2014. About 1,800 properties were affected. We estimate the impact of this information on home prices using data from all real estate transactions in the district with a difference-in-differences framework embedded in a hedonic pricing model. We find that the posting of this information had a very small and statistically insignificant impact on house prices, suggesting people do not care much about the long-term risks of sea-level rise as they do not incorporate these risks in their investment decisions.

Keywords: house price, sea level rise, climate change, erosion

JEL Classification: Q540, R380

Suggested Citation

Filippova, Olga and Noy, Ilan and Nguyen, Cuong and Rehm, Michael, Who Cares? Future Sea-Level-Rise and House Prices (2019). CESifo Working Paper No. 7595, Available at SSRN: https://ssrn.com/abstract=3374587

Olga Filippova (Contact Author)

University of Auckland - Department of Property ( email )

12 Grafton Rd, OGG Building
Private Bag 92019
Auckland Central, Auckland 1142
New Zealand

Ilan Noy

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

Cuong Nguyen

Victoria University of Wellington - School of Economics and Finance ( email )

PO Box 600
Wellington, 6140
New Zealand

Michael Rehm

University of Auckland ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

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