Abstract: More than 16% of properties in England are exposed to flood risk and more than half those affected properties are projected to face a flood event by 2050. In this paper we examine whether the probability of flooding is capitalised in England's property market prices. We use property-level data from Rightmove, UK's no.1 property website and the property-level FloodScore by Ambiental. The latter metric estimates the likelihood of an individual property being flooded due to rainfall as well as overflowing rivers and tidal surges. We find that properties at risk are sold at 8.35% discount compared to non-affected properties. The price discount reaches 19% for high risk properties. In addition, our empirical model suggests that one percent increase in properties' flood risk is associated with a decline of £214 and £248 in sold and asking price, respectively. This work fills a gap in the literature by examining how flood risk can directly affect the UK residential real estate market and builds the foundations for a better understanding of climate-related risk in the property market.

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Abstract: This paper contributes to the growing literature on growth-at-risk that predicts future tail risks to real GDP growth based on current macro-financial conditions and has become a central approach in financial stability analysis. We extend the benchmark model specification to explore whether changes in sovereign credit ratings predict future macroeconomic tail risks. Our results suggest that rating downgrades have a strong negative effect on the left tail and median values of conditional future GDP growth distribution, whereas upgrades have no effect. The impact is asymmetric across quantiles and forecast horizons.

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Abstract:  The commercial real estate market plays an important role in financial stability due to its size, its use as collateral and its high degree of cyclicality. In 2021, total lending in the UK CRE market was estimated at more than £180bn. In this paper, we examine the macro-financial vulnerabilities stemming from the CRE market. Our empirical evidence indicates that adverse developments in the CRE market significantly increase systemic risk across all financial sub-sectors, since they decrease the value of collateral held by financial institutions and therefore increase the probability of their default. However, the relationship between real estate and financial markets exhibits considerable non-linearities. First, in periods of misalignments in the market, the relationship between systemic risk and CRE growth weakens in line with the deviation hypothesis, suggesting that further increases in property prices in an already overheated market could lead to the build-up of a bubble and greater systemic risk. Then, we employ a quantile regression model that captures another aspect of this non-linear relationship. We find that positive (negative) developments in the CRE market decrease (increase) the right tail of the historical systemic risk distribution and therefore narrow (broaden) the gap with the relatively constant left tail.

Abstract: Since 1966 the Severn Bridge has been connecting England and Wales, but in January 2018 its ownership returned to the UK government for the first time since its construction and by the end of the year all tolls were removed. This marked the start of a toll-free journey across the two countries and made commuting between the regions more affordable. In this paper, we employ data from the Land Registry and UK local authorities to examine the impact of the toll removal on the residential house prices in the two countries. Our findings suggest that house prices in affected areas in South Wales are positively affected by the policy, which results in an statistically significant increase of 2.8% more than South West England regions. The results indicate that the toll removal enables the ripple effect across the two markets by reducing commuting costs. When we extend the examined area, the ripple effect results in a higher house price growth rate of 3.6%. We then use England regions as controls and we find that the impact is mostly driven by the Welsh regions that benefited considerably, whereas South West England does exhibit similar patterns as does the rest of the country. Finally, we find that new properties and flats in Wales were benefited the most by the toll removal.

Abstract: Systemic risk is inherently associated with the real economy. A systemic event, such as the collapse of a systemically important institution causes immediate macroeconomic distress. In this paper we focus on the opposite relationship of whether forecast macroeconomic tail risks affect firm-level systemic risk. We employ a large global dataset of more than 500 financial institutions operating across nine Eurozone economies, the UK and the US. Our findings have some interesting policy implications. When the macroeconomy shifts from normal times to distressed periods, measured by median and 5th percentile growth rates respectively, the average additional Conditional Value-at-Risk of the financial institutions increases by 0.2%. In addition, the empirical evidence from the panel regression model indicate that an increased probability of weak or negative future output growth (macroeconomic tail risk) increases firm-level systemic risk across all countries and financial sectors. The impact is stronger for systemically important institutions (O-SIIs and G-SIBs) that are more exposed to domestic developments. Finally, we extend our analysis and we estimate residential and commercial real estate tail risks. The results are in line with our previous findings, as an increase in the real estate estimated distribution tail is associated with greater systemic risk.

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