Unpriced climate risk and potential consequences of overvaluation in US housing markets

This repository contains the code used to perform the analyses described in the following paper:

Gourevitch, J., Kousky, C., Liao, Y., Nolte, C., Pollack, A., Porter, J., and Weill, J. (2023) Unpriced climate risk and potential consequences of overvaluation in US housing markets. Nature Climate Change.

Abstract:

Climate change impacts threaten the stability of the US housing market. In response to growing concerns that increasing costs of flooding are not fully captured in property values, we quantify the magnitude of unpriced flood risk in the housing market by comparing the empirical and economically efficient prices for properties at risk. We find that residential properties exposed to flood risk are overvalued by $121 – $237 billion, depending on the discount rate. In general, highly overvalued properties are concentrated in counties along the coast with no flood risk disclosure laws and where there is less concern about climate change. Low-income households are disproportionately at risk of losing home equity from price deflation, and municipalities that are heavily reliant on property taxes for revenue are vulnerable to budgetary shortfalls. The consequences of these financial risks will depend on policy choices that influence who bears the costs of climate change.