Climate Hazards Meet Overpriced Cities: Linking Environmental Risks to Real Estate Markets Across the Globe

We examine how climate hazards influence housing affordability, measured by the price-to-income ratio (PTI), across a global cross-section of cities. While previous research links PTI mainly to credit conditions and bubble dynamics, the role of climate hazards remains largely unexplored. Using hierarchical cluster analysis to group climate indicators and quantile regressions to capture effects across the distribution of PTI, we find that climate factors matter little at the median and lower end of the PTI distribution, but strongly influence the most overpriced markets. Higher cooling degree day, reflecting prolonged warming, raise PTI ratios by enhancing the amenity value of milder winters, whereas extreme hot days above 35 °C lower PTI, are associated to a reduced demand under acute heat stress, and therefore to lower PTIs. Our results which highlight both the risks of raising temperatures and the amenity value of warmer winters imply that temperate cities should prepare for intensified affordability pressures as warming winters drive further overpricing, while tropical cities may experience easing PTI but face severe health and infrastructure risks. Policies must integrate housing, finance, and climate adaptation to address these divergent challenges.