Climate change has brought about an increased number of natural disasters, with many creating intense damage and destruction. Natural disasters cause both direct and indirect impacts, ranging from infrastructure damage to health threats. Previous studies have examined the direct, quantifiable financial losses caused by natural disasters. However, very few examine the indirect impacts, created from such things as the disruption in the flows of goods and services, migration, and real estate prices, ultimately adding additional adverse effects on the economy and the financial markets.
This study will examine the indirect impact of natural disaster on real estate values at the county level. Specifically, the paper estimates the impact that continual threats of natural disasters have on real estate values and investigates how much prices decline and how quickly prices recover after an actual disaster.
The data for the study is collected at the county level, and uses several variables to predict median house value including median household income, geographic location, a risk index, and socioeconomic status. Ultimately, this paper explores one financial risk of living in disaster prone areas throughout the United States. The study finds that while there is some negative pressure on housing prices due to an increasing natural disaster risk, the impact is negligible at the county level when compared to broader financial and market activity.