Impact of climate risk materialization and ecological deterioration on house prices in Mar Menor, Spain

Abstract

Abstract The frequency and severity of extreme events related to climate change have intensified worldwide in the last decades. It is documented that increasing extreme rainfall and flooding cause more nutrient runoff into waterbodies, initiating numerous harmful algal bloom (HAB) events, especially in fragile ecosystems. We analyze the dramatic economic damage of one of these episodes in Mar Menor, the largest salt-water lagoon in Europe. We show that when the public perceived the severity of environmental degradation, the return on housing investment was 43% lower in the surroundings than in similar neighboring zones 6 years after the HAB (2015). This represents a loss in housing wealth of more than 4000 million euros, around ten times the gains of changing from dry-farming to irrigated crops, which makes this ecosystem fragile. Hence, we quantify some of the economic consequences of ecological deterioration linked to episodes of Global Climate Change.