A 2023 University of California, Berkeley research paper titled “High Temperature, Climate Change and Real Estate Prices” investigates the risk of climate change to real estate in the United States of America. A summary of key points is below. The full paper can be read here.

  • The study analyzes the impact of abnormal temperature exposures and climate change beliefs on residential real estate markets in the United States.
  • A detailed dataset of abnormal temperature exposures for properties across the US is constructed using granular weather data and information on 32 million transactions from 2000-2021.
  • Measures of temperature exposure are created, including the average abnormal temperature experienced at a property location in a transaction month, the number of extreme hot or cold days in that month, and the abnormal number of extreme hot or cold days.
  • The study tests whether local temperatures affect house prices, hypothesizing that due to the immobility of residential properties and the risks of climate change, home buyers would demand a price discount due to increasing concerns about future climate risks.
  • The results show that abnormal temperature exposure significantly decreases house prices. For instance, a 1-standard deviation increase in abnormal temperature correlates with a decrease of 0.07 percentage points in house prices.
  • This negative impact is concentrated in the top quintiles of unusually warm weather. One extra day above 30°C is associated with a 0.04-percentage-point decrease in house prices. Months with more than 20 extremely hot days see a decrease of 2.0 percentage points in house prices.
  • The effects of abnormal temperature exposure on house prices are more pronounced in regions with stronger belief in climate change and during periods of increasing public attention to climate change.
  • The study finds that the belief in climate change plays a significant role in property pricing, as areas with more climate change believers have a greater negative impact on house prices due to abnormal temperature exposure.
  • Using the publication of Stern Review as a quasi-natural experiment, it is found that the effect of abnormal temperature exposure on house prices increased post the Stern Review’s release.
  • The study also finds that the discount observed in house prices due to abnormal temperature exposure is not reflected in rental prices, suggesting the discount is linked to future climate change risks, not current property quality.
  • The negative impact of abnormal temperature exposure on house prices is stronger in the South, West, and Midwest relative to the Northeast areas, for properties above the median house price, and in locations with relatively inelastic supply.
  • The negative impact of abnormal temperature exposure on house prices is significantly stronger in counties exposed to the risk of sea-level rise (SLR).