As a young researcher, Benjamin Keys studied the fallout from subprime mortgages. The economistsaw how unpriced risk hadbrought the global economy to its knees during the 2008 financial crisis. Thenclimate change caught his attention.
“Thinking about what were the biggest risks to homeowners, it seemed like climate was the most important and least examined,” said Keys, now a real estate and finance professor at the Wharton School of the University of Pennsylvania.
He thought Florida was the right place to look. Although the Sunshine State’s real estate market was booming, he suspected climate risk might lead to a correction in the housing market.
To test this idea, Keys and Philip Mulder, now on faculty at the University of Wisconsin at Madison’s business school, searchedfor the prelude to a housing crash: a distinctive “lead-lag” pattern of a spike in unsold homes (“the lead”), followed by falling prices (“the lag”).
The same pattern had preceded the subprime mortgage housing collapse in the mid-2000s.
By sorting through more than a million Florida home transactions based on climate risk, they could see whether homes vulnerable to flooding were bought and sold differently than comparable ones on safer ground.
There were now, it appeared, two emerging real estate markets: homes insulated from climate risk, and those most exposed to it.
Keys and Mulder tested whether any factors besides climate change could be to blame for falling home values: higher insurance premiums, recent flood damage, access to mortgages, poverty rates or a dearth of new construction.
Only one proved “strong and statistically significant”: people’s attitudes toward climate risk. Using public opinion data to gauge local sentiment, they found prices fell most where people were most worried about climate change.
“The most natural explanation for this pattern is the shrinking and eventual departure of market optimists from the market,” Keys and Mulder wrote in a 2020 paper published by the National Bureau of Economic Research.
Their analysis ends in early 2020, just before the pandemic sent hundreds of thousands of new residents to Florida and home prices soaring, swamping the climate signal in the data, Keys said.
To see if the same pattern had reemerged after the pandemic, The Post employed a similar methodology to analyze 2.2 million homes sold near the Florida coast since 2000: The pricing gap is now bigger than ever.
