The impact of natural disasters on rental markets: Heterogeneous effects, rental subsidies, and equity in disaster recovery

Abstract

This paper examines the effect of Hurricane Sandy on rental markets in New York City and how existing rental subsidies influenced post-disaster recovery. Using an event study design that exploits spatial variation in storm exposure, I document persistent heterogeneity in rent dynamics across neighborhoods. Specifically, flooded blocks in lower income neighborhoods experience rent declines for up to 7 years after the storm, while rents in higher income neighborhoods rebound, and increase further within two years of the storm. I provide evidence that these diverging effects reflect disparate neighborhood resources for recovery: market-rate landlords in lower income neighborhoods were constrained in their ability to renovate their properties until the distribution of the city’s relief funds. In contrast, I show that voucher landlords in similar neighborhoods renovated much earlier, consistent with less binding capital constraints, and appear to have recouped the investment through increased tenant rents. Programmatic features shifted the incidence of these increases nearly entirely on the government, providing a sort of insurance for voucher landlords and tenants.