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.

 
 
 
 

“A story of incompetence, arrogance, privilege and power”: A brief history of the Garden Bridge

Ewwww. Image: Heatherwick.

Labour assembly member Tom Copley on a an ignominious history.

The publication last week of the final bill for Boris Johnson’s failed Garden Bridge has once again pushed this fiasco into the headlines.

As well as an eye-watering £43m bill for taxpayers for this Johnsonian indulgence, what has been revealed this week is astonishing profligacy by the arms-length vehicle established to deliver it: the Garden Bridge Trust. The line by line account of their spending reveals £161,000 spent on their website and £400,000 on a gala fundraising event, amongst many other eyebrow raising numbers. 

Bear in mind that back in 2012, Johnson promised that the bridge would be entirely privately funded. The bridge’s most ardent advocate, Joanna Lumley, called it a “tiara for the Thames” and “a gift for London”. Today, the project would seem the very opposite of a “gift”.

The London Assembly has been scrutinising this project since its inception, and I now chair a working group tasked with continuing our investigation. We are indebted to the work of local campaigners around Waterloo as well as Will Hurst of the Architects Journal, who has brought many of the scandals surrounding the project into the open, and who was the subject of an extraordinary public attack by Johnson for doing so.

Yet every revelation about this cursed project has thrown up more questions than it has answers, and it’s worth reminding ourselves just how shady and rotten the story of this project has been.

There was Johnson’s £10,000 taxpayer funded trip to San Francisco to drum up sponsorship for the Thomas Heatherwick garden bridge design, despite the fact that TfL had not at that point even tendered for a designer for the project.

The design contest itself was a sham, with one of the two other architects TfL begged to enter in an attempt to create the illusion of due process later saying they felt “used”. Heatherwick Studios was awarded the contract and made a total of £2.7m from taxpayers from the failed project.


Soon after the bridge’s engineering contract had been awarded to Arup, it was announced that TfL’s then managing director of planning, Richard de Cani, was departing TfL for a new job – at Arup. He continued to make key decisions relating to the project while working his notice period, a flagrant conflict of interest that wouldn’t have been allowed in the civil service. Arup received more than £13m of taxpayer cash from the failed project.

The tendering process attracted such concern that the then Transport Commissioner, Peter Hendy, ordered an internal audit of it. The resulting report was a whitewash, and a far more critical earlier draft was leaked to the London Assembly.

As concerns about the project grew, so did the interventions by the bridge’s powerful advocates to keep it on track. Boris Johnson signed a mayoral direction which watered down the conditions the Garden Bridge Trust had to meet in order to gain access to further public money, exposing taxpayers to further risk. When he was hauled in front of the London Assembly to explain this decision, after blustering for while he finally told me that he couldn’t remember.

David Cameron overruled the advice of senior civil servants in order to extend the project’s government credit line. And George Osborne was at one point even more keen on the Garden Bridge than Johnson himself. The then chancellor was criticised by the National Audit Office for bypassing usual channels in order to commit funding to it. Strangely, none of the project’s travails have made it onto the pages of the London Evening Standard, a paper he now edits. Nor did they under his predecessor Sarah Sands, now editor of the Today Programme, another firm advocate for the Garden Bridge.

By 2016 the project appeared to be in real trouble. Yet the Garden Bridge Trust ploughed ahead in the face of mounting risks. In February 2016, despite having not secured the land on the south bank to actually build the bridge on, nor satisfied all their planning consents, the Trust signed an engineering contract. That decision alone has cost the taxpayer £21m.

Minutes of the Trust’s board meetings that I secured from TfL (after much wailing and gnashing of teeth from the Trust itself) reveal that weeks beforehand Thomas Heatherwick had urged the trustees to sign the contract in order to demonstrate “momentum”.

Meanwhile TfL, which was represented at board meetings by Richard de Cani and so should’ve been well aware of the mounting risks to the project, astonishingly failed to act in interests of taxpayers by shutting the project down.

Indeed, TfL allowed further public money to be released for the project despite the Trust not having satisfied at least two of the six conditions that had been set by TfL in order to protect the public purse. The decision to approve funding was personally approved by Transport Commissioner Mike Brown, who has never provided an adequate explanation for his decision.

The story of the Garden Bridge project is one of incompetence, arrogance and recklessness, but also of privilege and power. This was “the great and the good” trying to rig the system to force upon London a plaything for themselves wrapped up as a gift.

The London Assembly is determined to hold those responsible to account, and we will particularly focus on TfL’s role in this mess. However, this is not just a London issue, but a national scandal. There is a growing case for a Parliamentary inquiry into the project, and I would urge the Public Accounts Committee to launch an investigation. 

The Garden Bridge may seem like small beer compared to Brexit. But there is a common thread: Boris Johnson. It should appal and outrage us that this man is still being talked about as a potential future Prime Minister. His most expensive vanity project, now dead in the water, perhaps serves as an unwelcome prophecy for what may be to come should he ever enter Number 10.

Tom Copley is a Labour member of the London Assembly.