Method: I use a Difference-in-Differences approach to identify the causal effects of bluff collapses on home values in Pacifica, San Clemente, and Dana Point. I study the effects of the widely publicized Jan 25-26, 2016 bluff collapse on Esplanade Ave (Pacifica), the Feb 13 Dana Point Headlands collapse, and the Feb 5 bluff collapse on Buena Vista Dr (San Clemente) on housing prices in these areas. The Pacifica collapse triggered a state of emergency, a slough of national headlines, and unleashed political chaos in the town, and the San Clemente and Dana Point collapses generated significant local coverage. 

If homeowners would ever take note of the risks sea level rise poses to their homes, it would be after these collapses. While these areas do have moderate histories of bluff collapse before the 2016 & 2024 episodes, these prior collapses had neither the coverage nor magnitude of the 2016 & 2024 collapses. These events are thus the most likely to affect how markets perceive and price in the threats posed by sea level rise and coastal erosion.

 I employ the canonical DiD setup (see Card and Krueger 1994) in each of the three cities, using neighborhood-level Redfin housing sales data available here.

Finding and Implications:

Results: DiD estimates for San Clemente are somewhat mixed. Single family residential homes do have a significant (below 0.05 p-value) drop in price after collapse, however the effect is non-significant and smaller for all homes in the area, potentially implying that there may be some heterogeneity (perhaps spuriously) in bluff collapses’ effect on prices. Dana Point has a more moderate picture, demonstrating a pattern of negative but statistically insignificant effects. Pacifica, by contrast, stands out as having a precisely estimated, negative, and highly significant effect for more than simply one housing price category, creating an interesting heterogeneity in my results. Why does Pacifica’s housing market appear to be significantly responding to bluff collapse while San Clemente and Dana Point’s markets are not? This heterogeneity presents an interesting puzzle, and I present theories to explain it below.

Theories: Theory 1: Nobody Selling

While somewhat unlikely, it is possible that markets in Dana Point and San Clemente actually are responding to SLR, but we cannot observe it. Because this dataset only includes valuations of homes that are sold, if homeowners in Dana Point and San Clemente are either unwilling to sell or cannot find buyers for their properties, then the homes which are most affected by bluff collapse and rising seas will not be found in the dataset, reducing the significance of effects in the two cities. It also may be the case that it takes longer to sell a threatened home for regulatory, insurance, or simple lack of demand, and that because Dana Point and San Clemente’s collapses were more recent, the data does not yet reflect market changes in these areas. The fact that Pacifica shows a significant increase in home sales in threatened regions after collapse is preliminary evidence that this could be the case.

Theory 2: Insurance Rules

Another explanation for why Pacifica’s prices may have fallen while its Orange County counterparts remain unbothered is insurance. Having insurance that covers the effects of bluff collapse would eliminate the financial risk posed to a property by sea level rise; homeowners could maintain their ocean views and pocketbooks if they were certain that their insurers would foot the bill of potential collapse. Importantly, traditional homeowners’ insurance does not cover the effects of coastal erosion, but some specialized insurance policies do. These policies are typically expensive and tough to obtain. It thus would make sense that the wealthier homeowners of Dana Point and San Clemente might be able to purchase this coverage while their poorer counterparts in Pacifica may not, softening the fiscal blow of bluff collapse for Dana Point and San Clemente while Pacifica’s market goes into freefall. 

Theory 3: Visibility

The third potential explanation for the gaps in significant market reaction to bluff collapse is the visibility of the collapse itself. Markets cannot react to what they do not notice, and bluff collapse tends to be a lesser known issue in San Clemente and Dana Point, whereas bluff collapse in Pacifica caused a state of emergency to be declared, made it into USA today, and was featured on the CBS evening news (Bowerman 2016, Blackstone 2016). A simple Google search of these bluff collapse events illustrates the dramatic differences in coverage. Determining whether this is a credible explanation for the heterogeneous effects would require tracking the number of news stories covering each event.

Efforts are underway to collect more data to test which of these hypotheses best explains the market's reactions to rising seas.