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Climate Change Belief Makes A Difference In Neighbourhood House Prices: Study

Our tendency to self-segregate into neighbourhoods with like-minded people may be driving this phenomenon.

MONTREAL — Want to buy some waterfront real estate? You’ll get a discount if you buy in an area where people believe climate change is real, a recent study suggests.

Researchers at the University of British Columbia and the University of Chicago looked at home sales transactions records for 10 million U.S. properties recorded on real estate portal Zillow, and compared that to data on climate change beliefs and projections for sea level rise.

They found that homes in flood-risk areas sell for less in areas where people are statistically more likely to believe climate change is real.

A photo of a flooded neighbourhood in Brisbane, Australia, from 2011.
On-Air via Getty Images
A photo of a flooded neighbourhood in Brisbane, Australia, from 2011.

“Our main finding is that, all else being equal, homes located in climate change ‘denier’ neighborhoods sell for about seven per cent more than homes in ‘believer’ neighborhoods,” the study’s authors wrote.

To understand what’s happening here, the authors suggested the concept of “homophily” — people tending to move to areas where they can find other like-minded people.

But that doesn’t matter when it comes to investment properties, which is why this price difference “exists only in owner-occupied properties,” said Lorenzo Garlappi, a professor of finance at UBC’s Sauder School of Business and co-author of the study.

“This is consistent with the fact that people might prefer to live in neighbourhoods where they meet like-minded neighbours.”

So who’s right and who’s wrong? The study authors won’t say.

“Our analysis is agnostic about whether it is believers who over-react or deniers who under-react to long-run risks of climate change,” they wrote.

The researchers looked only at U.S. data, and Garlappi hinted that the effect may not be as strong in Canada.

“I believe that belief polarization is less pronounced in Canada than in the U.S.,” he wrote in an email to HuffPost Canada, adding that he doesn’t have the evidence to prove this.

“If ... the climate change debate leads to more polarization, there is a  possibility that the effect we document will strengthen.”

- Lorenzo Garlappi, professor, Sauder School of Business, UBC

Whether or not this price differential gets bigger depends on how things play out with public perceptions of climate change.

“If the awareness about climate change affects all people equally, we should expect the phenomenon we document to disappear. If, however, the climate change debate leads to more polarization, there is a possibility that the effect we document will strengthen.”

Garlappi noted that the whole dynamic could change if governments start taking action to stop coastal flooding.

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