Willingness to Pay Climate Mitigation in Housing Markets: Evidence from California's Chapter 7A Building Codes

• In Event: Flood Risk, Insurance, and Housing Finance

Abstract

Climate change has increased the frequency and intensity of wildfire activity in California, raising housing market risk and altering the distribution of exposure across communities. At the same time, a growing share of the population resides in the Wildland Urban Interface, where residential development intersects with wildfire-prone landscapes. In response, the state has implemented a range of mitigation strategies, including Chapter 7A of the building code, which requires homes moderate- to very-high risk areas controlled by CalFire
to incorporate defensible space and ignition-resistant construction materials. While these regulations are intended to reduce structural vulnerability, they may also affect housing prices through both risk reduction and increased construction costs, as well as through shifts in buyer expectations. This paper estimates buyers’ willingness to pay (WTP) for Chapter 7A-compliant homes, with a particular focus on how this valuation varies across wildfire risk levels and local housing market conditions. A key empirical challenge is separating demand-side valuation of mitigation from supply-side cost effects associated with newer construction. To address this, I exploit the Palisades Wildfire as a discrete information shock that increased the salience of wildfire risk and mitigation over a short period. Using a time-of-sale regression discontinuity design (RDD), I estimate changes in WTP for Chapter 7A homes before and after the fire, stratifying results by underlying risk exposure. I hypothesize that as baseline wildfire risk increases, WTP for Chapter 7A homes declines, reflecting the joint capitalization of both risk and mitigation into housing prices. To further isolate these effects, I implement a complementary discontinuity-in-differences framework in which non–Chapter 7A homes serve as a control group. This approach allows for separate identification of the capitalization of wildfire risk and the valuation of mitigation measures. The results contribute to understanding how climate adaptation policies are priced in housing markets and the extent to which they mitigate or exacerbate risk-related disparities, especially in rapidly growing and high-risk regions.

Author

• Finn Dobkin, George Washington University
  Presenting Author