Capitalization of Typhoon Risk in Housing Prices

Typhoons are becoming more intense, destructive, and unpredictable due to global warming. Different from low-frequency disasters with single-impact nature (e.g., earthquakes and floods), typhoons exhibit cyclical risk patterns—frequent low-loss events interspersed with rare highly-destructive typhoons—which amplify vertical risk perception through availability heuristics. While previous studies on typhoon risk capitalization mainly focus on horizontal proxies such as flood zone maps, This study examines how typhoons' unique intermittent risk cycles reshape vertical housing price gradients through risk salience amplification. We introduce the “typhoon-induced vertical gradient”—greater price discounts on higher floors post-typhoon. We establish a risk capitalization framework that incorporates floor-level heterogeneity in high-rise structures to investigate the typhoon-induced vertical gradient and how this vertical gradient varies across different regions. The results reveal a typhoon-induced vertical gradient within the high-rises and the higher the floor level, the greater the vertical gradient is. We also hope to find that this vertical gradient would be more significant in the high-risk regions than in the low-risk regions. This gradient exhibits spatial self-reinforcement – high-risk regions demonstrate stronger effects than low-risk areas By formalizing cognitive constraints in vertical space pricing, this research bridges behavioral finance with urban economics. The findings provide insurers with floor-level risk premia models and inform climate-resilient zoning policies through 3D risk mapping.