Disaster Risk, Saliency Shocks, and Real Estate Markets: Evidence from the Phlegraean Fields

Hedonic models say real estate markets price natural disaster risk, especially after catastrophic events. But can salience alone—absent any disaster, and with geological risk already known and pre-existing—shift risk perception and tolerance enough to affect prices? To answer this question, we leverage a natural experiment provided by the unique case study of 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 geological phenomenon involving cyclic ground uplift and often accompanied by seismic activity perceptible by the population. We show that the recent bradyseismic crisis that began in 2023 has significantly affected local real estate markets, despite minimal damage so far and 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.