Bloomberg covers a new working paper by Miyuki Hino and Marshall Burke that reveals that markets fail to take into account climate-related risks, resulting in many Americans overpaying for housing in at-risk areas.
“At least 3.8 million U.S. homes lie in flood plains. Together, they may be overvalued by $34 billion.
New research published today in a National Bureau of Economic Research working paper shows that markets fail to incorporate risks from flooding and climate-related catastrophes. Losses from extreme weather events are rising, a function mostly of people and wealth becoming more concentrated where they’re most vulnerable. If home prices more accurately reflected risk, the researchers say, there’d most likely be less development in flood plains.
‘The additional risk created by these investments is likely growing due to climate change and the long-lived nature of housing and infrastructure,’ write Miyuki Hino of University of North Carolina at Chapel Hill and Marshall Burke of Stanford. ‘Such concerns extend to other climate hazards as well: both flood-prone and fire-prone locations have experienced substantial development in recent years.'”
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