Working Paper: NBER ID: w27930
Authors: Benjamin J. Keys; Philip Mulder
Abstract: In this paper, we explore dynamic changes in the capitalization of sea level rise (SLR) risk in housing and mortgage markets. Our results suggest a disconnect in coastal Florida real estate: From 2013-2018, home sales volumes in the most-SLR-exposed communities declined 16-20% relative to less-SLR-exposed areas, even as their sale prices grew in lockstep. Between 2018-2020, however, relative prices in these at-risk markets finally declined by roughly 5% from their peak. Lender behavior cannot reconcile these patterns, as we show that both all-cash and mortgage-financed purchases have similarly contracted, with little evidence of increases in loan denial or securitization. We propose a demand-side explanation for our findings where prospective buyers have become more pessimistic about climate change risk than prospective sellers. The lead-lag relationship between transaction volumes and prices in SLR-exposed markets is consistent with dynamics at the peak of prior real estate bubbles.
Keywords: Housing Markets; Sea Level Rise; Mortgage Lending; Climate Change; Real Estate
JEL Codes: G21; G22; G50; Q54; R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lead-lag relationships in housing bubbles (E32) | understanding current market behaviors (G41) |
| SLR exposure (Y60) | decline in housing transaction volumes (R31) |
| increased awareness and concern about climate risks (Q54) | decline in housing transaction volumes (R31) |
| local climate change beliefs (Q54) | sharper declines in transaction volumes (F44) |
| decline in housing transaction volumes (R31) | eventual price reductions (D49) |
| SLR exposure (Y60) | price stability until 2018 (E31) |
| lender behavior (G21) | observed patterns in transaction volumes (C69) |
| high-poverty communities (I32) | declines in sales volumes and prices (L11) |