Recent research confirms that the climate threat is already showing up in prices. Economists Asaf Bernstein, Matthew Gustafson and Ryan Lewis have a recent paper showing that houses exposed to sea-level rise of between 0 and 6 feet have been selling at a 7 percent discount relative to houses a similar distance from the beach that aren’t exposed. The time period they look at is 2007-2016—before the damage from Harvey. They also confirm that the discount is higher in locations where people report more worry about climate change.
Another recent study, by environmental researchers Jesse Keenan Thomas Hill and Anurag Gumber, shows something similar. Focusing on Miami-Dade County, they show that higher-elevation locations have risen in price faster than similar locations at low elevations. That’s consistent with the theory that wealthy buyers pay a premium to escape flooding risk. High-elevation areas could also have other benefits, of course, such as increased safety from crime—but with crime down dramatically in Miami, this is a less convincing explanation of the increased elevation premium.
In fact, the price differences these economists find may be understating people’s worries about climate change, because of flood insurance. The U.S. government insures many coastal properties against floods, mostly in Texas and Florida. The National Flood Insurance Program charges below-market premiums to many of the riskiest houses, effectively subsidizing owners of the properties most vulnerable to coastal flooding.
So evidence shows that landlords, homeowners and real estate investors are now taking climate change seriously. Polls still find a big partisan gap in concern about climate change, with 67 percent of Republicans claiming that they worry only a little or not at all. But in financial markets, the reality of the phenomenon is starting to be felt.
This article was provided by Bloomberg News.