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Putting a Price on Good Weather

surferIt has been an uncharacteristically warm fall and early winter here in the Northeast, and I for one was very happy to forego a White Christmas in order to have a warm one. But how much does the weather matter to average Americans, and how does it affect the cost of living?

That’s a topic of interest to economists, including the authors of a newly released working paper by the National Bureau of Economic Research. Economists often use what are called hedonic pricing models to estimate willingness to pay for amenities, including weather, when predicting housing prices in any given area.

For instance, one 2013 paper estimated that households are willing to pay $5.90 per month for every degree warmer a city is in January and $5.46 per month for every degree cooler in July, as well as $4.50 for one fewer inch of precipitation (all calculated in 2004 dollars).

For example, let’s compare a warmer southern city with a colder northern spot, with the help of data from I used to live in Durham, North Carolina, with average highs of 48°F in January and 87°F in July. In Great Barrington, Massachusetts, home of AIER, the figures are 32°F and 81°F. Precipitation is nearly identical.

Using the method outlined in the paper, the milder winters in Durham turn out to be more attractive – and thus, more expensive — than the temperate summers in Great Barrington. Rents in Durham are about $81 per month higher due to weather, or almost $1,000/year. Breaking these down, willingness to pay is about $1,500 for Durham’s milder winters and about $500 for Great Barrington’s milder summers.

The numbers increase further for famously fair-weather cities. For example, San Diego – cooler than Great Barrington in summer, warmer than Durham in winter, and far sunnier than either – is estimated to cost over $5,000 more than Durham, and $6,000 more than Great Barrington annually, solely due to weather.

So if you, like me, are planning on putting on your winter jacket and scraping ice off your windshield regularly over the next few months, take solace that when you send in your rent or mortgage payments, they are smaller for it.

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