Hurricane risk perceptions and housing market responses: the pricing effects of risk-perception factors and hurricane characteristics

Abstract

This paper uses the difference-in-differences method to assess how home prices change in the periods after major hurricanes in Miami-Dade County and links these changes to risk-perception determinants that affect market participants' determination of the prices they are willing to accept or pay. The empirical results shed light on the effects of how risk-perception determinants, affected by different heuristics, can be important contributors to housing market dynamics caused by the physical effects of extreme weather events. We find that perception determinants related to hurricane intensity have a larger effect on housing prices than those related to hurricane frequency. More recent and stronger hurricane experiences also have a strong association with decreased housing prices. We find no evidence of a perception factor leading to underestimating chronic risks. The findings identify important nuances related to the housing market and contribute to enhancing coastal housing market stability from uncertainty about extreme weather by suggesting sensitive post-disaster policy reactions based on the effects of risk-perception factors.