Does sea level rise influence real estate transaction volumes?
Benjamin J. Keys and Philip Mulder explore the dynamic changes in the capitalisation of sea level rise risk in housing and mortgage markets in their article "Neglected No More: Housing Markets, Mortgage Lending, and Sea Level Rise".
They focus on coastal Florida to understand how increasing awareness and concern about sea level rise are reflected in real estate transactions and prices and whether lender behaviour has adjusted to these risks.
They conclude:
- Between 2013 and 2018, home sales volumes in the most exposed communities declined by 16-20% relative to less exposed areas, despite similar growth in sale prices.
- Between 2018 and 2020, relative prices in these at-risk markets declined by roughly 5% from their peak, indicating a delayed market response to sea level rise risk.
- Both all-cash and mortgage-financed purchases contracted similarly in sea level rise-exposed areas, with little evidence of loan denial or securitisation increases.
- Prospective buyers have become more pessimistic about climate change risk than prospective sellers, leading to declining transaction volumes before prices.
- The decline in volumes and prices is more pronounced in high-poverty, sea level rise-exposed communities and areas where a higher percentage of residents are worried about climate change.
The authors used data on home transactions, mortgage applications, and flood insurance to conclude that sea level rise impacts both transaction volumes and prices.
The delayed price response observed may be subject to other environmental, social or political factors not fully accounted for in the study.