Does climate change affect property prices? Only if you believe in it

A house in Lumberton, North Caroline, in the aftermath of a hurricane. Image: Getty.

In the wake of two powerful hurricanes in the U.S. this fall, the scientific evidence that climate change will raise the risk of severe weather events continues to grow.

In some coastal areas such as Hawaii and Florida, roughly one-tenth of all homes are expected to be underwater if sea levels rise by six feet. Zillow estimates that the value of homes at risk of being underwater is $882bn.

But not everyone in the U.S. public seems to agree about the future effects of climate change: In a Gallup survey from last year, 42 per cent of Americans agreed that global warming will pose a serious threat to their way of life, while a hefty 57 per cent disagreed.

Our recent research suggests that beliefs about the effects of projected climate change may impact real estate prices decades before the projected damages are expected to occur.

The valuation of a real estate asset depends on many parameters. The asset’s distance from the coast endows it with both scenic coastal views and inevitable exposure to coastal flooding.

Our study, published online in September, explored how residential real estate prices are impacted by beliefs about climate change. Using a novel set of data, we were able to uncover a relationship between differences in beliefs about the occurrence and the effects of climate change – that is, the change in the long-term likelihood of adverse weather events – and the real estate valuation of the homes exposed to those risks.

We used a comprehensive data set on coastal home transaction prices in the U.S. that maps individual homes to future inundation projections, employing proprietary data from Zillow and scientific forecast data on sea levels from the National Oceanic & Atmospheric Administration. We matched this to survey data on U.S. population beliefs about climate change from the Yale Program on Climate Change.

We discovered that homes projected to be underwater sell for more in counties with more climate change deniers, relative to believers. In other words, houses projected to be underwater in “believer” neighborhoods tend to sell at a discount compared to houses in “denier” neighborhoods. One standard deviation increase in the fraction of believers leads to a 7 per cent difference in the price of a home projected to be underwater.

With data like this, it’s important to figure out whether the results could have been influenced by other factors. What if beliefs about climate change are not correlated with other determinants of housing prices? For that reason, we controlled for a variety of house characteristics, including age, distance from the coast, lot size, number of bedrooms and parking, as well as regional characteristics such as average income, elevation and short-term flood risk.


Controlling for the distance from the coast is particularly important. All else being equal, most people prefer to live near the beach and will pay a premium to do so. That means houses more vulnerable to coastal flooding are more likely to have higher valuations due to their proximity to the coast. That can suggest a spurious relationship between homes being projected to be underwater and sales prices. But our analysis indicates there is a clear correlation.

Our study shows that disagreement about the occurrence and consequences of projected natural disasters may give rise to a valuation gap in U.S. real estate, decades before these disasters occur. This finding does not speak to whether climate change deniers or believers are wrong. But they cannot both be right. Whether their disagreement reflects expectations about climate risk or mitigation policies – such as coastal walls to prevent flooding – remains an open question.

The Conversation

Constantine Yannelis, Assistant Professor of Finance, University of Chicago; Lorenzo Garlappi, Professor of Finance, University of British Columbia, and Markus Baldauf, Assistant Professor of Finance, University of British Columbia.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

 
 
 
 

Joe Anderson: Why I resigned from the Northern Powerhouse Partnership

Liverpool Lime Street station, 2008. Image: Getty.

The Labour mayor of Liverpool has a few choice words for Chris Grayling.

I resigned from the board of the Northern Powerhouse Partnership this week. I just didn’t see the point of continuing when it is now crystal clear the government isn’t committed to delivering the step-change in rail investment in the North that we so desperately need. Without it, the Northern Powerhouse will remain a pipedream.

Local government leaders like me have been left standing at the altar for the past three years. The research is done. The case has been made. Time and again we’ve been told to be patient – the money is coming.

Well, we’ve waited long enough.

The only thing left is for the transport secretary to come up with the cash. I’m not holding my breath, so I’m getting on with my day job.

There’s a broader point here. Rail policy has been like a roller-coaster in recent years. It soars and loops, twisting and turning, without a clear, committed trajectory. There is no consistency – or fairness. When London makes the case for Crossrail, it’s green-lit. When we make the same case for HS3 – linking the key Northern cities – we are left in Whitehall limbo.

Just look at the last week. First we had the protracted resignation of Sir Terry Morgan as Chairman of HS2 Ltd. Just when we need to see firm leadership and focus we have instead been offered confusion and division. His successor, Allan Cooke, said that HS2 Ltd is “working to deliver” services from London to Birmingham – the first phase of the line – from 2026, “in line with the targeted delivery date”. (“In line?”)

Just when HS2 finally looked like a done deal, we have another change at the top and promises about delivery are sounding vaguer. Rumours of delays and cost over-runs abound.

Some would like to see the case for HS2 lose out to HS3, the cross-Pennine east-west line. This is a bit like asking which part of a train is more important: its engine, or its wheels. We need both HS2 and HS3. We are currently left trying to build the fourth industrial revolution on infrastructure from the first.

If we are ever to equip our country with the ability to meet rising customer and freight demand, improve connectivity between our major conurbations and deliver the vision of the Northern Powerhouse, then we need the key infrastructure in place to do that.


There are no shortcuts. Ministers clearly believe there are. The second piece of disappointing news is that officials at the Department for Transport have already confirmed to the freight industry that any HS3 line will not be electrified, the Yorkshire Post reports.

This is a classic false economy. The renaissance of the Liverpool Dockside – now called Superport – is undergoing a £1bn investment, enabling it to service 95 per cent  of the world’s largest container ships, opening up faster supply chain transit for at least 50 per cent  of the existing UK container market. Why squander this immense opportunity with a cut-price rail system?

Without the proper infrastructure, the North of England will never fulfil its potential, leaving our economy lop-sided and under-utilised for another generation. This is not provincial jealousy. Building a rail network that’s fit for purpose for both passenger and freight will remove millions of car journeys from the road and make our national economy more productive. It will also be cleaner, cheaper and more reliable. Our European neighbours have long understood the catalytic effect of proper connectivity between cities.

Similarly, linking together towns and key cities across the North of England is a massive prize that will boost growth, create jobs and provide a counterweight to Greater London, easing pressures on the capital and building resilience into our national economy.

To realise this vision, we need the finance and political commitment. Confirmation that the government is pushing ahead with HS3 – as well as HS2 – is now sorely needed.

With Brexit looming and all the uncertainly it brings in its wake, it is even more pressing to have clarity around long-term investment decisions about our critical infrastructure. Given the investment, the North will seize the chance.

But until ministers are serious, I have a city to run.

Joe Anderson is the elected Labour mayor of Liverpool.