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Climate change's impact on real estate prices in Chile

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  • Karla Hernández
  • Facundo Luna
  • Carlos Madeira

Abstract

Climate change should deteriorate the value of real estate, but studies are lacking for developing economies which may suffer the worst weather changes. We match an administrative register of all the real estate properties' transactions in Chile between 2002 and 2020 with a high spatial resolution dataset of local temperatures and precipitation. Even after controlling for a wide set of home characteristics or fixed-effects for each property, we find that fluctuations in temperatures had an impact on the prices of residential homes and agricultural properties. This work assesses the impact of climate change on real estate prices in Chile, analyzing two key climate change dimensions: change in temperature and change in precipitation. Chile presents a particular setting since it has a high climatic amplitude, allowing us to exploit the impact of temperature and rainfall on real estate prices for both low and high temperatures and more humid or dry regions. Our results show that hotter maximum temperatures during the Summer, Fall, and Winter seasons lowered the prices of residential homes. This result is consistent with the desire of households to avoid extremely hot days. Agriculture properties suffer an adverse effect from higher maximum and minimum Winter temperatures while experiencing a positive impact from higher minimum temperatures in the Summer, Fall, and Spring seasons, evidencing a preference from owners to avoid low temperatures except in Winter. Finally, from a prospective point of view, ex expects that maximum temperatures will have a negligible effect on Agricultural property prices in 2050. However, for the Residential Homes' prices, the higher maximum temperatures in 2050 could represent a substantial negative effect between -10.0% and -12.3% for the different possible scenarios.

Suggested Citation

  • Karla Hernández & Facundo Luna & Carlos Madeira, 2022. "Climate change's impact on real estate prices in Chile," PLOS Sustainability and Transformation, Public Library of Science, vol. 1(11), pages 1-17, November.
    • Handle: RePEc:plo:pstr00:0000035
    DOI: 10.1371/journal.pstr.0000035
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    References listed on IDEAS

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    1. Stefano Giglio & Matteo Maggiori & Krishna Rao & Johannes Stroebel & Andreas Weber & Stijn Van Nieuwerburgh, 2021. "Climate Change and Long-Run Discount Rates: Evidence from Real Estate [Abrupt climate change]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3527-3571.
    2. Carlos Madeira, 2022. "The double impact of deep social unrest and a pandemic: Evidence from Chile," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 135-171, February.
    3. Wenjian He & Yiyang Liu & Huaping Sun & Farhad Taghizadeh-Hesary, 2020. "How Does Climate Change Affect Rice Yield in China?," Agriculture, MDPI, vol. 10(10), pages 1-16, September.
    4. Riccardo Colacito & Bridget Hoffmann & Toan Phan, 2019. "Temperature and Growth: A Panel Analysis of the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(2-3), pages 313-368, March.
    5. Carlos Madeira, 2022. "A review of the future impact of climate change in Chile: economic output and other outcomes," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 27(8), pages 1-22, December.
    6. Bernstein, Asaf & Gustafson, Matthew T. & Lewis, Ryan, 2019. "Disaster on the horizon: The price effect of sea level rise," Journal of Financial Economics, Elsevier, vol. 134(2), pages 253-272.
    7. Markus Baldauf & Lorenzo Garlappi & Constantine Yannelis & José Scheinkman, 2020. "Does Climate Change Affect Real Estate Prices? Only If You Believe In It," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1256-1295.
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    More about this item

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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