Disaster Risk, Public Salience, and Real Estate Markets: Evidence from the Phlegraean Fields

Hedonic models suggest that real estate markets price natural disaster risk, particularly in the aftermath of catastrophic events. But can public salience alone—absent any actual disaster and with an underlying hazard already known and pre-existing—shift risk perception and tolerance enough to affect economic behavior and market outcomes? We answer this question by drawing on a natural experiment provided by the Phlegraean Fields, a large volcanic caldera near Naples, Italy. The area is home to over one million residents and is characterized by bradyseism, a distinctive geological phenomenon involving cyclic ground uplift often accompanied by seismic activity perceptible by the population. Combining granular sub-municipal data with an event-study design, we show that the bradyseismic crisis that began in 2023 significantly affected local real estate markets, despite minimal physical damage and no abrupt change in the long-known risks of living in the area. We find substantial heterogeneity both between and within affected zones, and the results suggest that the crisis is exacerbating pre-existing housing inequality in the most vulnerable areas.no abrupt shift in the long-known risks of living in the area. Using granular sub-municipal data, we provide quasi-experimental evidence of sudden declines in residential property sale prices in the most affected areas, alongside a substantial increase in rental prices across the entire caldera that is likely driven by speculation in response to growing demand for safer housing.