Effect of climate risk on real estate prices, evidence from the OECD countries

Abstract

Climate change-related risks, such as flooding and other climate hazards, threaten the housing market worldwide. This study incorporates climate risk into real estate pricing in 25 selected OECD countries. I utilized panel data analysis on a comprehensive dataset covering the timespan from 1995 to 2021 and analyzed 675 country-year observations. This research offers insights into climate risk and how it affects real house prices in the countries examined. Similar research suggests a negative relationship between increased climate vulnerability and house prices. The research also finds a negative relationship between real house prices and increased climate vulnerability. Furthermore, the findings suggest that highly climate-vulnerable countries experience a more negative relationship between real house prices and climate vulnerability. Also, increased climate readiness for these countries has a statistically significant positive relationship with real house prices, while in the main sample, there is no relationship between the two. On the contrary, my findings suggest that low climate-vulnerable countries do not have a statistically significant relationship between increased climate vulnerability or increased climate readiness with real house prices, meaning that climate risk does not affect real estate prices in low climate vulnerable countries as buyers of real estate do not see climate risk as a threat to their asset. This is in line with similar studies. This highlights the importance of adapting climate risk into account for investment decision-making for investors, home buyers, financial institutions, builders, and the government.Keywords: climate risk, climate change, real estate, OECD countries