Climate Gentrification: Valuing Perceived Climate Risks in Property Prices

Abstract

There is growing evidence that physical climate hazards—such as floods and wildfires—affect property prices. Climate change scenarios suggest more frequent and severe physical climate hazards in the future, coinciding with greater exposure of populations to such threats. This raises concern because changes in property prices pose risks to homeowners’ financial status, as well as to the insurance and mortgage industries, bank portfolios, and thereby financial systems. We begin with a new definition of climate gentrification (CG) that captures links between physical climate hazards, perceptions of risk and resilience, and capital flows in property markets. This is followed by a structured assessment of the key drivers of CG, and an empirical case study of property data for a flood-prone UK city to demonstrate how CG depressed house price growth over the period from 2005 to 2018 by up to 50 percent in flood-exposed (relative to unexposed) locations. We then provide a discussion of ethical concerns around CG research, with suggested ways forward. Such price signals have potential ramifications for the long-term stability of real estate markets and raise policy implications for private and public sectors. We conclude with some priorities for further research into CG, recognizing key information and data gaps, and noting how existing knowledge and tools could contribute toward improved resilience to climate change. Key Words: climate gentrification, climate hazards, flood, hedonic model, property prices.