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Disaster on the horizon: the price effect of sea level rise

Source(s):  Elsevier

This paper examines how US markets price coastal real estate in relation to the long-run risks and uncertainty of sea level rise (SLR). Consistent with causal identification of long horizon SLR costs, this paper finds no relation between SLR exposure and rental rates and a 4% discount among properties not projected to be flooded for almost a century. The findings contribute to the literature on the pricing of long-run risky cash flows and provide insights for optimal climate change policy.

Homes exposed to sea level rise (SLR) sell for approximately 7% less than observably equivalent unexposed properties equidistant from the beach. This discount has grown over time and is driven by sophisticated buyers and communities worried about global warming. 

Answering this question of pricing is important because of the key role that markets can play in mitigating this disaster: pricing expected SLR risk today reduces the possibility of wealth transfers between uninformed and sophisticated agents, and reduces the likelihood of extreme price swings in the future.

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  • Disaster on the horizon: the price effect of sea level rise
  • Publication date 2018
  • Author(s) Bernstein, Asaf; Gustafson, Matthew; Lewis, Ryan
  • Number of pages 64 p.

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