Rental Affordability in the Wake of Natural Disasters

Abstract

Natural disasters have been increasing in intensity at the same time that rental affordability has been declining in many cities. The intersection of these two trends presents an important challenge for policymakers as well as an insightful test for economic theory. This paper presents a new dataset at this intersection, merging property-level rental outcomes with ZIP code-level hurricane incidence, damage, and government assistance. We construct a panel difference-in-differences model that estimates the effect of the hurricanes from 2000Q1 to 2019Q3 on zip codes throughout the state of Florida. Results indicate that rents per unit and rents per square foot increase by almost 7% in the quarter following a hurricane, but the effect diminishes over the next 2-4 years. Meanwhile, vacancy rates decrease slightly and then increase sharply and persistently, though their effect also moderates in the later years. The inverse relationship between rent levels and vacancy rates distinguish post-disaster rental markets from regular ones. We propose several possible theoretical explanations for these findings that change our understanding of how rental markets adjust and how some of the most vulnerable members of society are affected by market failures in times of distress.

Keywords: natural disaster, rental affordability, rent change, vacancy rate, market failure

JEL Classification: Q54, R31, R21, R23, R28, R38