Household residential location choice in retirement: The role of climate amenities

Abstract

The paper examines the relationship between climate amenities and locational choices in retirement. Using data from 2017 release of the American Community Survey, I construct a household residential location choice model and value climate amenities from the trade-offs among housing cost, climate amenities, and other locational attributes in a metropolitan statistical area (MSA). On average, a retired household is willing to pay $1209 for a 1 °C drop in average summer temperature, $1114 for a 1 °C increase in average winter temperature, and $486 for a 1 °C decrease in temperature variability. The values of climate amenities vary with household demographic characteristics, and older households with a higher retirement income and disability have a higher marginal willingness to pay for a favorable climate. Moreover, among the retired population, there exists a positive preference-based sorting across MSAs, where those favoring the preferred temperatures more than the average live in places with a more friendly climate. Using the estimated preference parameters, I compute the values of projected climate amenities and find that retired households would be willing to pay nearly 3.3% of their annual income to avoid a standard future projected climate scenario. Simulation results suggest that over 2% of retired households would relocate in response to this level of climate change, resulting in an overall northbound shift in the retired population.