How Wildfire risk affects real estate investment

While thousands of housing are destroyed by wildfires every year, real estate market analysis rarely accounts for the risk of wildfire. Recent research, however, shows that homebuyers are less concerned about the climate risk of properties; homebuyers are more concerned about factors such as affordability, home size, and proximity to work and family. Housing prices in high-fire-risk areas are relatively higher than homes in low-fire-risk areas. In other words, homebuyers prefer housing in the suburbs where they must face the risk of wildfire. Despite the indifference of homebuyers to fire risk, it is important to address climate factors including the risk of fire when analyzing real estate markets.

To date, there are several data available to examine fire risk at different spatial levels. One interesting data source comes from the Landsat satellite images, in which there are algorithms suggested to detect burned areas from the Landsat archive. For instance, the map below shows the burned area across the United States from 1984 to 2018. Burned areas are concentrated in certain spots, further suggesting that wildfires are not opportunistic. Wildfires have often occurred in states including California, Nevada, Idaho, Kansas, and Oregon.

Would wildfires continuously occur in the same areas? In general, wildfire occurs due to several factors: higher temperatures, drier conditions, and more wind. These conditions altogether increase the risk of wildfire as well as the probability of wildfire being spread to other regions. That being said, it is critical to predicting the areas where the likelihood of higher temperatures, drier conditions, and more wind would increase in the future. Relevant research shows that the vulnerability of wildfires would increase in areas such as Nevada and Idaho.

According to a recent report, more than 20% of single-family housing in the United States is considered to have a high risk of wildfire. Another 30% of single-family housing also faces a minor risk of wildfire. While the outcome of wildfire is quite disastrous, homebuyers often forget about it because it is an opportunistic and rare event. Another useful factor to address is the ability of governments to suppress the fire. With all these signals (e.g., temperature, humidity, wind, government ability to suppress fire), we expect to find areas at risk. Market Stadium is looking forward to applying climate risk and vulnerability scores to our market analysis.

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Jay Ha

Head of Urban Research

Doctoral student in Urban Planning at USC

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