Fall in the Sea, Eventually?: A Green Paradox in Climate Adaptation for Coastal Housing Markets
Efficient adaptation to climate change in coastal areas is likely to require public policy interventions. New policies or expectations of policy changes that impact private assets, such as housing, may generate economic incentives that result in unintended consequences. We examine the effect on new housing development resulting from a scientific report by a regulatory agency mandating coastal communities in North Carolina (NC) consider sea-level rise when developing new land-use policies. Estimates from our preferred triple-differences model suggest the policy announcement increased building permits by 32% in coastal NC counties until permitting returned to pre-policy levels after a moratorium on new regulations was passed by the state legislature. Our results are supported by numerous robustness checks, including alternative controls, placebo tests and a parcel-level model in Dare County, NC. This green paradox in coastal climate adaptation implies that hundreds of millions of dollars in additional unregulated housing was constructed in NC locations vulnerable to sea-level rise likely due to perverse incentives generated by a policy signal.
Parton, Lee C. and Dundas, Steven J. (2020). "Fall in the Sea, Eventually?: A Green Paradox in Climate Adaptation for Coastal Housing Markets". Journal of Environmental Economics and Management, 104, 102381. https://doi.org/10.1016/j.jeem.2020.102381