Climate Policy and Transition Risk in the Housing Market

Public policies aimed at mitigating climate change can come with the transition risk of sudden adjustments of asset prices. We study the consequences of a policy intervention addressing greenhouse gas emissions in the housing market. Leveraging a unique data set of the population of all house transactions in England and Wales, we document novel evidence of transition risk. Prices of carbon-intensive properties affected by this policy decreased by about £5,000 to £9,000 relative to unaffected ones. We interpret this result as evidence in favour of semi-strong market efficiency in the housing market. We infer moderate implications for financial stability and for the wealth distribution among homeowners.