Property insurance provides an important hedge against disasters, but distorted premiums can mute the pricing of disaster risks. We document that removing flood insurance subsidies precipitates a 2% average price decline, primarily concentrated in properties exposed to sea level rise. Our findings demonstrate that reducing premium distortions accelerates the incorporation of climate change risk in house prices. The house price effect is not fully explained by the cash flows from subsidy reductions, and indicates markets’ increased perceptions of uninsured risks. Higher premiums reduce mortgage take-up as mandatory insurance becomes costlier, and encourage the rebuilding of homes, especially in risky locations.
