“Disaster on the Horizon: The Price Effect of Sea Level Rise”
Asaf Bernstein, Matthew Gustafson, and Ryan Lewis.
Sea level rise coming home, the market is paying attention (Halleluia! who woulda thunk it. The real estate market, especially on the coasts is a wretched hive of villainy))
The first sentence of the abstract is “Homes exposed to sea level rise (SLR) sell at a 7% discount relative to observably equivalent unexposed properties equidistant from the beach.”
More:
“This effect is primarily driven by properties unlikely to be inundated for over half a century, suggesting that it is driven by investors pricing long horizon concerns about SLR costs.”
” … the SLR exposure discount has increased substantially over the past decade, coinciding with both increased awareness and more pessimistic prognoses about the extent and speed of rising oceans. In particular, we document increased transaction volume and lower prices for sophisticated buyers following the significant revisions of the IPCC’s 2013 release, which increased SLR projects and awareness.”
” … properties that will experience ocean encroachment after 1 foot of global average sea level rise trading at a 22%, 2-3 feet at a 17% discount, 4-5 feet at a 9% discount and 6 feet at a 6% discount. [4] Using the long run discount rate provided by Giglio et al. (2014) and assuming complete loss at the onset of inundation, we estimate that markets expect 1 foot of sea level rise within 35 years, 2-3 feet within 45 years, 4-5 feet after 65 years, and 6 feet in 80 years. These results are consistent with the medium to high projections provided in Parris et al. (2012) and utilized by the NOAA in their 2012 report.
” … exposed non-owner occupied properties trade at a 10% to 11% discount, relative to comparable non-exposed properties. ”
” … expectations regarding future SLR have steadily increased over the course of our sample period … At the beginning of our sample in 2007 we find no significant difference between the prices of exposed and unexposed properties. By the end of our sample in 2016, exposed non-owner occupied properties are priced approximately 13.5% below comparable unexposed properties.”
” … we find evidence that the discount applied to non-owner occupied properties increased from 8.1% to 14.0% following the IPCC release.
” … consistent with the idea that as information about SLR risks comes to light, exposed properties should be more likely to transact, we find that the annual probability of turnover is approximately 0.2 percentage points higher for exposed properties between 2011 and 2016 (relative to a base transaction rate of approximately 11% for all properties). This is entirely driven by the period following the IPCC report where we see a 0.8 percentage point increase in the annual probability of an exposed property transacting.”
I see a remake of the “The Big Short” coming up. A good title might be “Underwater.”
Open access (no doi ?!) . Read the whole thing:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3073842
sidd
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