Disaster on the horizon: The price effect of sea level rise

Homes exposed to sea level rise (SLR) sell for approximately 7% less than observably equivalent unexposed properties equidistant from the beach. This discount has grown over time and is driven by sophisticated buyers and communities worried about global warming. Consistent with causal identification...

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Bibliographic Details
Published in:Journal of financial economics 2019-11, Vol.134 (2), p.253-272
Main Authors: Bernstein, Asaf, Gustafson, Matthew T., Lewis, Ryan
Format: Article
Language:English
Subjects:
Asset prices
Beliefs
Climate change
Disasters
Environmental policy
Floods
Global warming
Policy making
Real estate
Sea level
Sea level rise
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Summary:Homes exposed to sea level rise (SLR) sell for approximately 7% less than observably equivalent unexposed properties equidistant from the beach. This discount has grown over time and is driven by sophisticated buyers and communities worried about global warming. Consistent with causal identification of long-horizon SLR costs, we find no relation between SLR exposure and rental rates and a 4% discount among properties not projected to be flooded for almost a century. Our findings contribute to the literature on the pricing of long-run risky cash flows and provide insights for optimal climate change policy.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2019.03.013