Increasing storm risk, structural defense, and house prices in the Florida Keys

Abstract

The market's ability to cope with storm-related risk partially depends on whether this risk is reflected accurately in house prices. We assess the degree to which these prices reflect storm-related risk versus amenities, and how storms change this relationship, with a statistical model that uses an objective procedure to choose among nearly one thousand variables that may affect house prices in the Florida Keys before and after Hurricane Irma. Results suggest that house prices are determined largely by amenities. Storms increase the importance of features related to structural defense and change their prices such that Hurricane Irma raises the price for most houses and lowers the price for others. Consequently, the expected market wide decline in prices does not appear. Furthermore, prices for features related to structural defense may not accurately reflect risk, which could increase storm-related losses and inequitable outcomes over time, and highlights the need for interventions to provide accurate signals about risk.