Does the housing market respond to flood insurance prices? Evidence from England (Job Market Paper) - with Rachel Baker
The risk of natural disasters is increasing across the globe. However, it is not clear whether homeowners and buyers understand or respond to these risks; in fact, there is evidence that home buyers have difficulty understanding risk information, and forget about actual events within a few years. Although consumers may not respond to risk information, prices provide another potential signal to induce market response. In this paper, we provide some of the first empirical estimates of whether home buyers are attentive to disaster insurance prices. We take advantage of an exogenous shock to insurance prices: a policy change that subsidizes flood insurance for high-risk homes in the UK. Using a dataset of all residential property sales in England, we find that home buyers are quite sophisticated in their response to the price of flood insurance. Homes that receive flood insurance subsidies rise in value by 9.8%, implying full or close to full capitalization of insurance prices. Our results suggest that risk-based disaster insurance pricing can influence the housing market and promote adaptation to climate change.
Research in Progress
The impact of flooding on home values: Evidence from high-resolution flood outlines
Peer effects in lawn conversions: A study of the Santa Clara Valley rebate program - with Dina Gorenshteyn
Endogenous rainfall: the effect of local forest cover on precipitation in Brazil