Does Information About Climate Risk Affect Property Values?

31 Pages Posted: 2 Mar 2020 Last revised: 1 Apr 2022

See all articles by Miyuki Hino

Miyuki Hino

University of North Carolina (UNC) at Chapel Hill

Marshall Burke

University of California, Berkeley; Stanford University - Freeman Spogli Institute for International Studies

Date Written: February 2020

Abstract

Floods and other climate hazards pose a widespread and growing threat to housing and infrastructure around the world. By incorporating climate risk into asset prices, markets can discourage excessive development in hazardous areas. However, the extent to which markets actually price these risks remains poorly understood. Here we measure the effect of information about flood risk on residential property values in the United States. Using multiple empirical approaches and two decades of sales data covering the universe of homes in the US, we find little evidence that housing markets fully price information about flood risk in aggregate. However, the price penalty for flood risk is larger for commercial buyers and in states where sellers must disclose information about flood risk to potential buyers, suggesting that policies to improve risk communication could influence market outcomes. Our findings indicate that floodplain homes in the US are currently overvalued by a total of $34B, raising concerns about the stability of real estate markets as climate risks become more salient and severe.

Suggested Citation

Hino, Miyuki and Burke, Marshall, Does Information About Climate Risk Affect Property Values? (February 2020). NBER Working Paper No. w26807, Available at SSRN: https://ssrn.com/abstract=3547155

Miyuki Hino (Contact Author)

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Marshall Burke

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

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