Climate Change and Real Estate Markets: an Empirical Study of the Impacts of Wildfires on Home Values in California

This study uses a quasi-experimental design to evaluate the impacts of the major wildfires in California from 2016 to 2021 on property value at the neighborhood level, as defined by Census tracts. I construct a 12-year (2010-2021) panel data set and run spatial panel models with random effects to compare changes in home values between neighborhoods affected by wildfires and control neighborhoods identified through propensity score matching. The analysis shows that the overall impact of wildfires on home values in fire-touched neighborhoods is not statistically significant. When considering the proportion of land burned by wildfires in a neighborhood, a statistically significant impact emerges, with home values declining by 0.014 % for every 10percentage point increase in the proportion of land burned. Nonetheless, the impact of wildfires on home values in nearby neighborhoods within five miles of wildfire perimeters is statistically significant. On average, major wildfires cause a 2.2 % price drop in nearby neighborhoods. The price drop in nearby neighborhoods is positively associated with proximity to wildfires, fire frequency, and fire scale. With the relatively modest impact of wildfires on property values, relying on market-based approaches may not be effective in curbing the future growth in fire-prone and amenity-rich communities.