Wind and Water: How Extreme Weather Conditions Impact Residential Real Estate in Developing Countries

Abstract

The damaging effects of extreme weather is concerning for many countries across the globe. Though the impact of these events on the housing market has been studied extensively, one aspect that remains unexplored is the value of mortgages. Further, there is no clarity on the impact of the specific types of homes. This study analyzed mortgages and apartment values and included residential land sale prices over 16 years for different localities across Jamaica. The analysis revealed that mortgages are adversely affected by excess rainfall while apartment sale prices are reduced by hurricanes but increased by excess rain. However, residential land prices remain unaffected by both events. The results point to the importance of climate adaptation for the local real estate market and property investment.

Keywords

Excess rainfall / Hurricanes / Jamaica / Residential real estate

References

[1] Apergis N. Natural disasters and housing prices: Fresh evidence from a global country sample. International Real Estate Review, 2020, 23: 815-836.

[2] Atreya A, Ferreira S. Seeing is believing? Evidence from property prices in inundated areas. Risk Analysis, 2015, 35(5): 828-848

[3] Below S, Beracha E, Skiba H. The impact of hurricanes on the selling price of coastal residential real estate. Journal of Housing Research, 2017, 26(2): 157-178

[4] Beltrán A, Maddison D, Elliott R. The impact of flooding on property prices: A repeat-sales approach. Journal of Environmental Economics and Management, 2019, 95: 62-86

[5] Bin O, Landry CE. Changes in implicit flood risk premiums: Empirical evidence from the housing market. Journal of Environmental Economics and Management, 2013, 65(3): 361-376

[6] Boose ER, Serrano MI, Foster DR. Landscape and regional impacts of hurricanes in Puerto Rico. Ecological Monographs, 2004, 74(2): 335-352

[7] Burgess CP, Taylor MA, Spencer N, Jones J, Stephenson TS. Estimating damages from climate-related natural disasters for the Caribbean at 1.5°C and 2°C global warming above preindustrial levels. Regional Environmental Change, 2018, 18(8): 2297-2312

[8] Cohen, J.P., J. Barr, and E. Kim. 2021. Storm surges, informational shocks, and the price of urban real estate: An application to the case of hurricane sandy. Regional Science and Urban Economics 90: Article 103694.

[9] Collalti D, Strobl E. Economic damages due to extreme precipitation during tropical storms: Evidence from Jamaica. Natural Hazards, 2022, 110(3): 2059-2086

[10] Collalti, D., N. Spencer, and E. Strobl. 2023. Flash flood detection via copula-based IDF curves: Evidence from Jamaica. Natural Hazards and Earth System Sciences. Discussion. https://doi.org/10.5194/nhess-2023-162.

[11] Cupal M. Flood risk as a price-setting factor in the market value of real property. Procedia Economics and Finance, 2015, 23: 658-664

[12] Davies, R. 2016a. Jamaica – 1 rescued after flash floods in Montego Bay—More flood warnings issued. FloodList, 29 February 2016.

[13] Davies, R. 2016c. Jamaica—Heavy rain causes damaging floods and landslides. FloodList, 28 October 2016.

[14] Davies, R. 2016b. Jamaica—Floods wreak havoc on roads in northern parishes. FloodList, 12 December 2016.

[15] Davies, R. 2017a. Jamaica—Hundreds of homes damaged after floods in Clarendon. FloodList, 24 April 2017.

[16] Davies, R. 2017b. Jamaica—PM calls for change in response to extreme weather after Montego Bay floods. FloodList, 28 November 2017.

[17] Dudzińska, M., B. Prus, R. Cellmer, S. Bacior, K. Kocur-Bera, A. Klimach, and A. Trystuła. 2020. The impact of flood risk on the activity of the residential land market in a polish cultural heritage town. Sustainability 12(23): Article 10098.

[18] Emanuel K. Increasing destructiveness of tropical cyclones over the past 30 years. Nature, 2005, 436(7051): 686-688

[19] Fang L, Li L, Yavas A. The impact of distant hurricane on local housing markets. The Journal of Real Estate Finance and Economics, 2021, 66: 327-372

[20] George B, Banerjee S, Kumar R. Determinants of impact of natural disaster in SAARC countries with special reference to india. Economic Research Guardian, 2021, 11(1): 64-77.

[21] Gibbs, S. 2021. Assessment and cleanup efforts to start today following passage of tropical storm Elsa. https://iriefm.net/assessment-and-cleanup-efforts-to-start-today-following-passage-of-tropical-storm-elsa/. Accessed 11 Oct 2022.

[22] Goodman LS, Mayer C. Homeownership and the American dream. Journal of Economic Perspectives, 2018, 32(1): 31-58

[23] Gourley P. Curb appeal: How temporary weather patterns affect house prices. The Annals of Regional Science, 2021, 67(1): 107-129

[24] Henry M, Spencer N, Strobl E. The impact of tropical storms on households: Evidence from panel data on consumption. Oxford Bulletin of Economics and Statistics, 2020, 82(1): 1-22

[25] Holland GJ. An analytic model of the wind and pressure profiles in hurricanes. Monthly Weather Review, 1980, 108(8): 1212-1218

[26] Ishizawa OA, Miranda JJ. Weathering storms: Understanding the impact of natural disasters in Central America. Environmental and Resource Economics, 2019, 73(1): 181-211

[27] Ismail NH, Karim MZA, Basri BH. Flood and land property values. Asian Social Science, 2016, 12(5): 84-93

[28] Keys, B.J., and P. Mulder. 2020. Neglected no more: Housing markets, mortgage lending, and sea level rise. Technical report. Cambridge, MA: National Bureau of Economic Research.

[29] Knutson T, Camargo SJ, Chan JC, Emanuel K, Ho C-H, Kossin J, Mohapatra M, Satoh M Tropical cyclones and climate change assessment: Part II: Projected response to anthropogenic warming. Bulletin of the American Meteorological Society, 2020, 101(3): E303-E322

[30] Komarek TM, Filer L. Waiting after the storm: The effect of flooding on time on the housing market in coastal Virginia. Applied Economics Letters, 2020, 27(4): 298-301

[31] Linton, L. 2021. Damage caused by heavy rains estimated at $803 million. Kingston, Jamaica: Jamaica Information Service.

[32] McAlpine SA, Porter JR. Estimating recent local impacts of sea-level rise on current real-estate losses: A housing market case study in Miami-Dade. Florida. Population Research and Policy Review, 2018, 37(6): 871-895

[33] Miller, R.G., and N. Pinter. 2022. Flood risk and residential real-estate prices: Evidence from three US counties. Journal of Flood Risk Management 15(2): Article e12774.

[34] Murfin J, Spiegel M. Is the risk of sea level rise capitalized in residential real estate?. The Review of Financial Studies, 2020, 33(3): 1217-1255

[35] Murphy, A., and E. Strobl. 2009. The impact of hurricanes on housing prices: Evidence from US coastal cities. https://www.researchgate.net/publication/46445159_The_Impact_of_Hurricanes_on_Housing_Prices_Evidence_from_US_Coastal_Cities. Accessed 11 Oct 2023.

[36] Mutlu, A., D. Roy, and T. Filatova. 2023. Capitalized value of evolving flood risks discount and nature-based solution premiums on property prices. Ecological Economics 205: Article 107682.

[37] National Library of Jamaica. 2012. History of hurricanes and floods in Jamaica. Technical report. https://jis.gov.jm/media/2021/05/History-of-Hurricanes-and-Floods-in-Jamaica.pdf. Accessed 11 Oct 2023.

[38] Norton G. Hurricanes of 1951. Monthly Weather Review, 1952, 80(1): 1-4

[39] Ortega F, Taspınar S. Rising sea levels and sinking property values: Hurricane sandy and New York’s housing market. Journal of Urban Economics, 2018, 106: 81-100

[40] Ouazad A, Kahn ME. Mortgage finance and climate change: Securitization dynamics in the aftermath of natural disasters. The Review of Financial Studies, 2022, 35(8): 3617-3665

[41] Planning Institute of Jamaica. 2004. Jamaica macro-socio-economic and environmental assessment of the damage done by Hurricane Ivan Sept 10–12, 2004. Technical report. Kingston, Jamaica: Planning Institute of Jamaica.

[42] Planning Institute of Jamaica. 2010. Macro socio-economic and environmental impact assessment of the damage and loss caused by tropical depression no.16. Technical report. Kingston, Jamaica: Planning Institute of Jamaica.

[43] Planning Institute of Jamaica. 2013. Jamaica macro socio-economic and environmental assessment of the damage and loss caused by Hurricane Sandy. Technical report. Kingston, Jamaica: Planning Institute of Jamaica.

[44] Rajapaksa D, Wilson C, Managi S, Hoang V, Lee B. Flood risk information, actual floods and property values: A quasi-experimental analysis. Economic Record, 2016, 92: 52-67

[45] Reyna, P. 1988. Jamaica’s premier reports island devastated by hurricane. Kingston, Jamaica: Associated Press. September 14.

[46] Saptutyningsih, E., and D.S. Dewanti. 2023. Measuring the economic impact of landslide hazard: Hedonic price approach. IOP Conference Series: Earth and Environmental Science 1180: Article 012048.

[47] Sawada Y, Nakata H, Sekiguchi K, Okuyama Y. Land and real estate price sensitivity to a disaster: Evidence from the 2011 Thai floods. Economics Bulletin, 2018, 38(1): 89-97.

[48] Seabrook, V. 2021. Climate change: 167 million homes could be wiped out by 2040, warns charity. Sky News, 9 June 2021.

[49] Smith, D., and A. Mandal. 2014. Flood risk in Jamaica: Recent damage and loss due to tropical cyclones in Jamaica. https://cdkn.org/sites/default/files/files/Floods-and-DRM-in-Jamaica-_with-policies_final.pdf. Accessed 11 Oct 2023.

[50] Spencer N, Strobl E. Crime watch: Hurricanes and illegal activities. Southern Economic Journal, 2019, 86(1): 318-338

[51] Spencer N, Urquhart M-A. Hurricane strikes and migration: Evidence from storms in Central America and the Caribbean. Weather, Climate, and Society, 2018, 10(3): 569-577

[52] Spencer N, Urquhart M-A. Extreme climate and absence from work: Evidence from Jamaica. International Journal of Disaster Risk Science, 2021, 12(2): 232-239

[53] Strobl E. The economic growth impact of natural disasters in developing countries: Evidence from hurricane strikes in the Central American and Caribbean regions. Journal of Development Economics, 2012, 97(1): 130-141

[54] Stull WJ. Community environment, zoning, and the market value of single-family homes. The Journal of Law and Economics, 1975, 18(2): 535-557

[55] United Nations Office for the Coordination of Humanitarian Affairs. 2020. Natural disasters in Latin America and the Caribbean 2000–2019. Technical report. New York: United Nations Office for the Coordination of Humanitarian Affairs.

[56] van Veelen, E. 2020. The impact of hurricanes on residential property value. Ph.D. thesis. School of Electronics and Computer Science, University of Southampton, Southampton, UK.

[57] Vosper, E.L., D.M. Mitchell, and K. Emanuel. 2020. Extreme hurricane rainfall affecting the Caribbean mitigated by the Paris Agreement goals. Environmental Research Letters 15(10): Article 104053.

[58] Wei, F., and L. Zhao. 2022. The effect of flood risk on residential land prices. Land 11(10): Article 1612.

[59] World Meteorological Organization Weather-related disasters increase over past 50 years, causing more damage but fewer deaths, 2021, Geneva: World Meteorological Organization

[60] Zhai G, Fukuzono T, Ikeda S. Effect of flooding on megalopolitan land prices: A case study of the 2000 Tokai flood in Japan. Journal of Natural Disaster Science, 2003, 25(1): 23-36.

[61] Zhang L. Flood hazards impact on neighborhood house prices: A spatial quantile regression analysis. Regional Science and Urban Economics, 2016, 60: 12-19