Climate Change and Housing Choice: the Impact of Climate Differences on Capital-Land Elasticity of Substitution

Yuval Arbel, Chaim Fialkoff and Amichai Kerner

Journal of Real Estate Literature, 2018, vol. 26, issue 1, 189-209

Abstract: We examine the hypothesis that developers and consumers are more responsive to variations in the relative price of land in areas with a warmer climate. We proxy the climatic factor by the temperature in January, April, July, October, and the average of four months in 21 U.S. states. Using a HUD dataset of single-family newly- constructed housing units from 1996 to 1997, we employ the CES equilibrium equation to analyze the data. Regression analysis results support the research hypothesis. Land-to-structure elasticity of substitution (ES) rises significantly by 0.0149–0.0203 when the weather becomes one degree Fahrenheit warmer. The findings may be of assistance to real estate developers, agents, and appraisers in identifying the requirements of potential consumers and applying different lot subdivisions in warmer and colder climatic regions.

Date: 2018
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DOI: 10.1080/10835547.2018.12090477

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