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The Impact of Emerging Climate Risks on Urban Real Estate Price Dynamics

Author

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  • Devin Bunten
  • Matthew E. Kahn

Abstract

In the typical asset market, an asset featuring uninsurable idiosyncratic risk must offer a higher rate of return to compensate risk-averse investors. A home offers a standard asset's risk and return opportunities, but it also bundles access to its city's amenities|and to its climate risks. As climate change research reveals the true nature of these risks, how does the equilibrium real estate pricing gradient change when households can sort into different cities? When the population is homogeneous, the real estate pricing gradient instantly reflects the "new news". With population heterogeneity, an event study research design will underestimate the valuation of climate risk for households in low-risk cities while overestimating the valuation of households in high-risk areas.

Suggested Citation

  • Devin Bunten & Matthew E. Kahn, 2014. "The Impact of Emerging Climate Risks on Urban Real Estate Price Dynamics," NBER Working Papers 20018, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20018
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    References listed on IDEAS

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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Some Comments on Robert Rubin's "Risky Business"
      by Matthew Kahn in Environmental and Urban Economics on 2014-07-27 03:43:00
    2. Some Foreshadowing Regarding How We Will Adapt to "6 Hideous Realities We Must Face"
      by Matthew Kahn in Environmental and Urban Economics on 2014-08-06 09:56:00
    3. Some Comments on Nordhaus (2016)
      by Matthew Kahn in Environmental and Urban Economics on 2017-01-31 20:51:00
    4. Should Hollywood Make More Movies About Climate Change?
      by Matthew Kahn in Environmental and Urban Economics on 2017-04-29 09:01:00

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    Cited by:

    1. Kahn, Matthew E., 2015. "Climate Change Adaptation: Lessons from Urban Economics," Strategic Behavior and the Environment, now publishers, vol. 5(1), pages 1-30, June.
    2. Kahn, Matthew E. & Walsh, Randall, 2015. "Cities and the Environment," Handbook of Regional and Urban Economics, Elsevier.

    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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