How Do Investors Reconfigure Homeownership in Hurricane Recovery? Evidence from New York City and Houston

• In Event: Climate Shocks and the Reallocation of Households and Housing

Abstract

In the United States, real estate investor activity in residential homes has been rising since the 2009 financial crisis, and so has the risk of flooding. When flood damage occurs, public assistance often fails to meet the magnitude and urgency of the needs of impacted communities. Homeowners, especially those without insurance or liquid resources, are then left with drastic repairs to handle on their own or may opt to sell their home and relocate. These conditions can provide opportunities for private capital to acquire damaged properties at a discount, a practice described by media sources as disaster speculation. However, limited evidence on the scale, location, timing, and implications of post-flood investor activity makes it challenging to assess whether existing regulations are adequate.Here, we use decade-long transaction records to characterize post-flood investor activity in housing markets and its effect on the nature of residential ownership. We focus on the two costliest storms in the continental U.S. in the last decade: Superstorm Sandy (2012) in New York City and Hurricane Harvey (2016) in Houston. New York City is known for its high-density developments and supply-constrained market, whereas Houston features an expansive single-family housing stock. Taken together, the two cases set the bounds of how units are physically exposed to flood damage and the investment value of post-storm vacancies.We operationalize investors as non-owner-occupied homebuyers and group them into nonlocal and local actors. We hypothesize that flood damage led to surges in investor activity in both cities, especially among local investors. With a quasi-experimental design, we exploit variation in flood depth to identify the effect of flood damage on investor purchase likelihood. We also analyze post-acquisition dynamics such as resale timing and neighborhood-level ownership shifts. Our preliminary analyses suggest that investor activities rise with flood damage severity. We further account for property type, baseline flood risk, and socioeconomic compositions to show how investor acquisition and resale behaviors vary across neighborhoods.Overall, we provide empirical evidence on whether natural hazards have shifted homeownership patterns in U.S. cities. Our parcel-level approach directly ties investor transactions to hurricane recovery, revealing a key potential market mechanism driving neighborhood changes and contributing to the hazard gentrification literature. Our clarification of how and to what extent investors participate in housing recovery can inform interventions related to recovery justice and to increasing housing ownership transparency. Furthermore, this study potentially challenges the view that there are only costs to housing investors by testing if private capital accelerates rebuilding when other resources fall short. Policymakers may potentially explore partnerships with mission-aligned investors to help residential owners access recovery resources.

Author

• Ruitian Yan, University of North Carolina at Chapel Hill
  Presenting Author