Do House Prices Reflect Climate Change Adaptation? Evidence from the City on the Water

Abstract

Investment in adaptation is a critical strategy to reduce the damages from climate change, yet there is limited evidence about its effectiveness and costs. We exploit the activation of a sea wall to protect the city of Venice from increasingly high tides to provide new evidence on the capitalization of infrastructure investment in climate change adaptation into housing values. Exploiting variation in the activation of the sea wall -- based on expected tides -- as well as in the exposure of different properties - based on characteristics (ground vs higher floors, stilts elevation) - we find that the sea wall increases house prices by 3% for properties above the activation threshold and by an additional 7% for ground-floor properties. Overall, one year after the activation the sea wall generated a 4.5% increase in the value of the total residential housing stock in Venice, that is a lower bound on the total welfare gains generated by this infrastructure.

Keywords: housing, climate change, adaptation, infrastructure

JEL Classification: Q54, R21, R38, O18, H54