« Back to Results

Climate Risk

Paper Session

Sunday, Jan. 8, 2023 8:00 AM - 10:00 AM (CST)

Sheraton New Orleans, Bayside B
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Nancy Wallace, University of California-Berkeley

Adverse Selection and Climate Risk

Michael Lacour-Little
,
Fannie Mae
Andrey Pavlov
,
Simon Fraser University
Susan M. Wachter
,
University of Pennsylvania

Abstract

We identify two data-related errors in the work of Ouazad and Kahn (OK, RFS 2021). Correcting either of these errors or both entirely reverses the original result, in OK’s code and in our independent implementation. The two corrections we implement are to use the correct FHFA conventional loan limits for each county and year and to compare the individual loan amount to that limit accurately. There is no statistical evidence that lenders transfer climate risk by altering their loan origination and securitization behavior. Lenders could do so in the future, especially if climate risk becomes easier to estimate and/or worsens.

Natural Disasters, Regional Economic Structure, and Commercial Real Estate

Shaun Alexander Bond
,
University of Queensland
Shawn McCoy
,
University of Nevada-Las Vegas
Ian McDonough
,
University of Nevada-Las Vegas

Abstract

The economic consequences of weather and climate disasters in the United State are of significant concern to institutional investors. In this paper we study commercial real estate market outcomes in response to natural disasters. In particular, we draw on recent research examining resilient regions and show how measures of resiliency may predict which markets and property types recover more quickly from natural disasters. We first investigate the price and cash flow impacts of a natural disaster to understand how market signals are responding to the occurrence of extreme climate events. Second, we consider how investors are responding to, and potentially mitigating, evolving climate risks by examining capital expenditure strategies in areas before and after extreme events occur. In each case we investigate these questions in the context of the economic resiliency of the region in which the property is located.

Climate Risk and Commercial Mortgage Delinquency

Rogier Holtermans
,
University of Guelph
Matthew Kahn
,
University of Southern California and NBER
Nils Kok
,
Maastricht University

Abstract

Natural disasters such as hurricanes, floods, heatwaves and wildfires are projected to become more prevalent in the foreseeable future. Climate risk is therefore increasingly recognized as an important factor by policy makers, the investment community, and financial markets. Due to the immobility of assets, the commercial real estate industry is especially vulnerable to climate risk, and there is an increasing interest to understand the impact of climate risk on the value of commercial real estate. For commercial real estate lenders, changes in collateral value are only of partial importance. The ability of borrowers to meet their payment obligations is equally, if not more important. By combining historic data on two major climate-related disasters – Hurricanes Harvey and Sandy – with longitudinal information on commercial mortgage performance, this paper identifies the impact of climate risks on mortgage delinquency rates for commercial real estate mortgages. The results show that both Harvey and Sandy led to elevated levels of commercial mortgage delinquency, with significant heterogeneity based on the extent of damage in the Census block group. Information provided through FEMA 100-year floodplain maps partially mitigates the effects, an indication that lenders incorporate flood risk information in the underwriting process.

Firm Mobility and Hurricanes

Rushaine Goulbourne
,
Brookings Institution
Amanda Ross
,
University of Alabama
Amir B. Ferreira Neto
,
Florida Gulf Coast University

Abstract

"We explore the effect of hurricanes on whether or not an establishment moves. The

analysis is conducted using the National Establishment Time Series (NETS) data for

Florida, which is an extensive establishment-level panel database. We find that hurricanes

are associated with an increase in the likelihood an establishment moves, especially within

the state of Florida. We also find that capital intensive firms are more likely to move after

a hurricane and that moves are most likely to occur within a year of the hurricane. Our

findings are important because the out-migration of establishments following a hurricane

may have long-run economic impacts on the areas that experience these disasters. Local

leaders should consider disaster preparedness tactics carefully as it relates to possible loss

of businesses."

Discussant(s)
Ahyan Panjwani
,
Yale University
Parinitha Sastry
,
Massachusetts Institute of Technology
Philip Mulder
,
University of Pennsylvania
Benjamin Collier
,
Temple University
JEL Classifications
  • R1 - General Regional Economics