Essays on Real Estate, Flood Risk, and Political Sentiment
This dissertation consists of three chapters that investigate how climate change, flood risk, and political sentiment influence outcomes in housing markets. Chapter 1: This chapter offers a brief review and discussion of several recent and seminal papers at the intersection of flood risk, climate change, and real estate, as well as a critique on some of the literature on the effects of sea-level rise on housing outcomes. Chapter 2: FEMA flood maps serve two functions: they signal risk to homeowners and mandate insurance take-up. How these information and risk transfer mechanisms affect homeowner relocation decisions remains unknown. Combining real estate transaction data and historical FEMA flood maps, I exploit geographic and temporal variation in flood zone designations, and insurance coverage limits of $250,000, to estimate how updated risk information and low-cost risk transfer affect the probability of home sales. I find homeowners who are drawn into high-risk flood zones are 10.4% more likely to sell their homes within two years, but only when the value of their homes exceeds the flood insurance coverage maximum. This finding is not explained by differences in location and building amenities, (predicted) insurance premium costs, transaction price differences, major flooding events, household income, race, or political affiliation. I conclude that while improved flood risk information could facilitate optimal homeowner sorting ex ante, risk transfer through subsidized flood insurance disincentivizes many homeowners from relocating from high-risk residential locations ex post. Chapter 3: Does partisan sentiment about the economy affect household decisions to invest in real estate? Using voter registration records, real estate transaction deeds, and Home Mortgage Disclosure Act (HMDA) public loan records, I show that households are 8% to 10% more likely to purchase investment homes when they share political affiliation with the U.S. president. This effect is greater when households share political views with the majority of neighbors on their block, suggesting political segregation leads to greater contagion of sentiment. Households politically aligned with the U.S. president invest in neighborhoods with lower housing prices and income, but those neighborhoods experience greater price appreciation and income growth in the following two years. These results are not driven by systematic differences in income, age, race, or ethnicity. While politically aligned households are more likely to purchase investment homes, they are not more likely to move into new residential homes, further evidencing the partisan sentiment effect is driven by divergence in expectations about housing market fundamentals.
Finance, Other Economics, Political Economy, Public Economics, Real Estate, flood risk, climate change, household finance, political polarization, flood insurance, fema
City University of New York - Graduate Center
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