Droughts and housing: damage and risk estimates from credit data
Ilya Eryzhenskiy (CIRED)
Abstract
Among all extreme weather events in France, most additional damage explained by climate change in the next 30 years is expected from droughts. Most of this damage is due to shrink-swell of clay soils that deforms buildings with weak foundations. Using administrative credit data, I estimate the damage for 2012-2021 and banks’ response to the additional damage anticipated within the next 20 years. Damages are estimated using renovation loan data and an event study methodology, where the event is a declaration of a state of drought by communes with clay-intensive soils. I show that an average bank branch triples the volume of renovation loan production during a severe drought that affects all communes of an agglomeration. The effect then tapers off and disappears after 6 quarters. I then calculate the cumulative exposure to droughts of each bank’s branch network, to quantify differences in information on the damages. I investigate whether this informational advantage affects production and pricing of house purchase loans in clay-intensive areas.