In early 2025, California faced another devastating wildfire season, with more than 16,000 structures destroyed and up to $53.8 billion in property damage. Events like these raise a big question: how do real estate markets respond to climate risk?

In this episode of The Property Pod, we take a deep dive into the 2023 paper Does the Salience of Climate-Related Risk Affect Asset Prices? by Cloé Garnache.

Garnache’s study looks at a 2007 wildfire risk re-zoning policy in California to explore whether homebuyers respond to the salience of climate risk (when a risk is made more attention-grabbing through zoning labels) or to actual increases in underlying wildfire hazard.

The results are surprising: prices didn’t drop just because a home was suddenly in a labeled “risk zone”. Using detailed transaction data and high-resolution fire risk models, the study reveals hat property prices do not drop at the new risk zone boundary where actual risk is constant. Instead, prices decline—by about 2.5%—in areas where the objective risk of wildfire actually increases.

In other words, homebuyers aren’t just reacting to maps or warnings—they’re responding to real risk. It's a finding that sheds light on how climate threats get priced into real estate, and what that means for markets going forward.

⁠⁠Link to the paper

Disclaimer: This episode’s audio and transcript were generated using AI.

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