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Fodi October 2023

Climate Risk and the Overvaluation of the Housing Market

Featuring:
Zhiyun Li, Economist, UCLA Anderson Forecast
Jesse Gourevitch, Postdoctoral Fellow, Economics Team, Environmental Defense Fund

A Conversation with Zhiyun Li and Jesse Gourevitch

 
Zhiyun Li
Economist,
UCLA Anderson Forecast

Zhiyun joined the UCLA Anderson Forecast in 2023. She focuses on forecasting and studying climate-related issues of the California and U.S economies. Her research interests include investigating how climate change and climate-related disasters affect different aspects of the economy, how economic agents such as firms and individuals adapt to climate impacts and helping policymakers to develop more efficient climate adaptation strategies. In her studies, she employs large spatial data and relies on methodologies ranging from panel data model, difference-in-differences approach to machine learning technique. 

Before joining UCLA Anderson Forecast, she received her PhD in Environmental, Energy and Resource Economics from Dyson School of Applied Economics and Management at Cornell University.  She also holds a bachelor’s degree from Huazhong University of Science and Technology, and a master’s degree in Statistics from Columbia University. 

The effects of climate change pose a risk to the stability of the housing market in the United States. There is growing concern that increasing costs of flooding are not fully captured in property values. In this episode of Anderson Forecast Direct podcast, Jesse Gourevitch from the Economics Team at the Environmental Defense Fund joined us to talk about their recent paper on quantifying the magnitude of unpriced flood risk in the US housing market.

Top Takeaways

1. Depending on the discount rate, residential properties exposed to flood risk are overvalued by $121-237 billion.

2. Geographic hotspots for highly overvalued properties are in counties along the coast with less information about climate risk.

3. Potential consequences for homeowners and local government:

  • Low-income households are at greater risk of losing home equity from price deflation.
  • Municipalities that are heavily reliant on property taxes for revenue are vulnerable to budgetary shortfalls.

4. The pricing of National Flood Insurance Program (NFIP) premiums and mortgage lenders can play an important role in greater capitalization of flood risk into home values.