Pricing Climate Risk: Evidence from Housing Markets in Sweden

Sammanfattning

This thesis investigates the relationship between climate risk, both theoretical and perceived, and property price levels and property price growth in the Swedish single-family housing market from 2015 to 2023. The topic is highly relevant in light of alarming reports highlighting areas at risk of becoming uninhabitable due to climate threats, as well as the rising frequency of extreme weather events in recent years. By using panel data covering Sweden's 290 municipalities, the study incorporates a forward-looking theoretical climate risk indicator, based on The Swedish Civil Contingency Agency's (MSB) climate risk index and two perception-based measures through insurance claims and damage costs from Insurance Sweden. Contrary to expectations, the results show no consistent negative relationship between any measures of climate risk and property prices. Theoretical climate risk showed no significant impact on property price levels. However, in certain years, the perceived risk variables, damage costs and insurance claims, had a significant positive contribution to the price level in that year. These findings may reflect reverse causality or mitigating effects from Sweden's robust insurance system. Furthermore, no significant relationship was found between any measure of climate risk and property price growth. The study contributes to the literature by providing empirical evidence on the effect of multiple climate risk dimensions in a Swedish context, offering insights for policymakers and market participants about the complex interplay between climate risk perception and real estate valuation.