Perception of Increasing Wildfire Risk Lowers Appreciation of Residential Real Estate in California

25 Pages Posted: 14 Aug 2023

See all articles by Xinkun Nie

Xinkun Nie

Stanford University

Kiran Chawla

E-IPER; Stanford Law School

Daniel Irvin

affiliation not provided to SSRN

David Hirschberg

Emory University

Stefan Wager

Stanford University - Department of Statistics

Michael W. Wara

Stanford Law School

Ines Azevedo

Stanford University - Department of Energy Resources Engineering

Abstract

Wildfires exacerbated by climate change are a growing issue in the US. However, the full economic implications of wildfires for the housing market are largely unknown. As a case study, we estimate the effect of changing wildfire risk perceptions on residential home sale prices in California. We employ cutting edge tools from causal inference to understand an often hard to estimate channel for the economic effects of natural disasters exacerbated by climate change: the cascading impact of changing risk perception on housing markets. Because of heightened risk perceptions of wildfires relative to pre-2015 levels, since 2015, homes in census tracts with high wildfire risk in California sell for 7.5% less than they otherwise would have. For an average California homeowner in a high wildfire risk census tract, this is a $37,715 loss due to lower home value appreciation, in part due to increased insurance costs. The impacts of this reduced appreciation are expected to extend beyond homeowners and have adverse effects on statewide revenues due to lower property taxes. We discuss how policy solutions that ignore these considerations may be inadequate in responding to the challenge of increasing climate risk and risk salience in the context of California wildfires.

Keywords: wildfires, climate change, insurance, causal inference

Suggested Citation

Nie, Xinkun and Chawla, Kiran and Irvin, Daniel and Hirschberg, David and Wager, Stefan and Wara, Michael W. and Azevedo, Ines, Perception of Increasing Wildfire Risk Lowers Appreciation of Residential Real Estate in California. Available at SSRN: https://ssrn.com/abstract=4540783 or http://dx.doi.org/10.2139/ssrn.4540783

Xinkun Nie

Stanford University ( email )

Kiran Chawla (Contact Author)

E-IPER ( email )

Stanford, CA
United States

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

Daniel Irvin

affiliation not provided to SSRN ( email )

No Address Available

David Hirschberg

Emory University ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

Stefan Wager

Stanford University - Department of Statistics ( email )

Stanford, CA 94305
United States

Michael W. Wara

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

Ines Azevedo

Stanford University - Department of Energy Resources Engineering ( email )

United States

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