REES Visiting Speaker Seminar: Dr. Martin Smith, Duke University. Friday, May 12, 2023

Title: The economics of delaying the inevitable at the coast

Speaker: Dr. Martin Smith, Duke University, Durham, NC, USA

Date: Friday, May 12, 2023

Time: 3:30 – 5:00 PM

Location: 550 General Services Building

Abstract:

Coastal real estate markets along the United States east coast are tightly coupled to the physical environment. Sea level rise and associated inundation will eventually alter this coupling, and an inevitable major transformation of coastal real estate markets will ensue. However, it is unclear how this process will unfold because real estate markets are both coupled to the physical environment and contain internal dynamics that can distort environmental signals. This paper develops a model for the long-term evolution of coastal real estate markets between now and the future point of total inundation due to sea level rise. We generalize the user cost of housing model—a standard stock-flow approach in economics and finance—to incorporate changing physical attributes of the coast, economic values of these attributes, and dynamic risks associated with storms and flooding.   To explore how the coupled system unravels with rising sea levels, we model resident owners, renters, and non-resident investors as agents that jointly determine coastal property values and the policy choices that influence the physical evolution of the coast.  We highlight two mechanisms that can effectively dampen climate signals in property value and delay the inevitable: government subsidies to coastal management that maintain wider beaches and arbitrage opportunities for purchasing coastal real estate in outside markets that attract residents with higher incomes and willingness to pay for coastal living.