Natural disasters and housing prices: What can we learn from tornadoes?

Abstract The impact of tornadoes on housing prices has not been extensively explored in a causal analysis framework. We estimate the effects of damage from a major tornado in Little Rock, Arkansas, on prices of nearby undamaged homes. We study how a typical home's proximity to damaged properties might have led to a discount in its price due to severe blight in the neighborhood. We focus on homes that sold between January 2022 and August 2024 and compare the effects of the March 31, 2023, tornado on sale prices for homes near versus far from damaged properties. For all home sales within 250 m of at least one tornado‐damaged property, our difference‐in‐differences estimates imply an average discount of approximately 20% relative to home sales further away. These effects disappear with greater distance from the nearest damaged property. Second, homes in lower income census block groups did not incur price effects that were significantly different from the effects for other homes. Finally, we show that the impact was short‐lived on average, as we find no significant price discount on homes sold near or far from damaged properties 9 months after the tornado.