Over the last few months, we kept talking about this issue. It fits into part of my research agenda on how urbanized nations will adapt to climate change. Within a nation, there are dozens and sometimes hundreds of cities to choose to live and work. Climate change will move these cities in "attribute space". Some Canadian cities will be warmer in winter while other coastal cities will face new serious risks. As these anticipated risks play out, how will migration and local real estate prices be affected? Who will lose and who will win (Canadian land owners?) due to climate change.
We have written a new paper that is available here;
The Impact of Emerging Climate Risks on Urban Real Estate Price Dynamics
In the typical asset market, an asset featuring uninsurable idiosyncratic risk must offer a higher rate of return to compensate risk-averse investors. A home offers a standard asset's risk and return opportunities, but it also bundles access to its city's amenities|and to its climate risks. As climate change research reveals the true nature of these risks, how does the equilibrium real estate pricing gradient change when households can sort into different cities? When the population is homogeneous, the real estate pricing gradient instantly reflects the "new news". With population heterogeneity, an event study research design will underestimate the valuation of climate risk for households in low-risk cities while overestimating the valuation of households in high-risk areas.