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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In our first episode, we unpack the findings of the 2015 Journal of Finance paper "Housing Collateral and Entrepreneurship" by Martin C. Schmalz, David A. Sraer, and David Thesmar. Drawing on data from France, the study explores how owning a home—particularly without a mortgage—can unlock entrepreneurial potential by easing credit constraints. We discuss how access to housing collateral influences not just the decision to start a business, but also its size and longevity.⁠Link to the paper⁠Disclaimer: This episode’s audio and transcript were generated using AI.

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