Climate Change and Real Estate Prices

Abstract

Direct real estate returns are correlated with shifts in weather patterns, which are proxied by changes in four moments of distribution for differences in average and maximum daily temperatures, deviations from optimal temperatures and climate risk index reported by Germanwatch. Changes in the volatility of daily temperatures are inversely correlated with direct real estate returns. The volatility effect appeared to be marginal in 1996-2007, but it became more pronounced in 2010-2017. Other moments of the distribution, including changes in means, skewness and kurtosis, fail to obtain predictive power. Results are robust to tests in a smaller sample of capital cities and the exclusion of observations with the most significant volatility increases.