Overview
Understanding how biodiversity affects financial markets is rapidly becoming essential for investors. The project ‘Biodiversity and Local Asset Values’ provides the first national-scale evidence of how biodiversity is priced in US real estate markets, using more than 58 million single-family property transactions from 2000 to 2021. Its findings reveal a fundamental shift in how market participants perceive ecological quality, as both a constraint and an increasingly valuable amenity.
Authors
Jess Cornaggia
Penn State University
Peter Iliev
Penn State University
Yu-Hsuan (Jennifer) Liang
Idaho State University
Qiang Wang
University of Calgary
Project aims
The project aims to determine whether biodiversity is capitalised into property prices and, if so, whether biodiversity enhances or diminishes asset values at different spatial scales.
To do this, the study is structured around 4 main objectives:
1
Examine the relationship between biodiversity and asset values
The paper aims to provide a national-scale benchmark analysis of whether biodiversity is capitalized into local asset values, particularly in the real estate sector. It investigates how biodiversity loss and conservation affect property values at both local and regional levels.
2
Understand the impact of biodiversity on financial markets
It seeks to explore how biodiversity is valued in financial markets, especially in real estate, where asset values are directly tied to local ecological conditions. The paper highlights biodiversity as both a development substitute and a consumption complement.
3
Develop a conceptual framework
The paper introduces a framework to model the interaction between housing services, property-level biodiversity, and regional biodiversity. This framework predicts the substitution and complementary effects of biodiversity on real estate prices.
4
Analyse trends over time
By using data from 2000 to 2021, the paper examines how the relationship between biodiversity and asset values evolves, noting an increasing valuation of biodiversity as natural capital over time.
Key insights
1
Property-level biodiversity loss raises local asset values
The study finds that when biodiversity is depleted at the property level, measured through habitat loss or species loss, market prices increase. A one-standard-deviation decline in habitat retention raises property prices by about 7% and a similar decline in species retention raises prices by roughly 8%. These results hold across typical homes and even more strongly for luxury properties. This effect reflects the economic benefits of development: removing habitat allows for more intensive or profitable land use, which increases transaction prices.
2
Regional biodiversity enhances property values
In contrast to property-level patterns, the study finds that species richness at the county level, reflecting the diversity and presence of species in the broader environment, positively correlates with property values. Buyers value biodiverse surroundings as an amenity and this effect remains strong even when property-level biodiversity loss is accounted for. Models that include both sets of measures show that each contributes independently and significantly to asset pricing.
3
Habitat variation nearby also boosts value
The research further shows that the variation in habitat retention within a one or 10-kilometre radius (the standard deviation or range of habitat quality) is positively associated with higher property prices. These measures capture habitat fragmentation and suggest that buyers value pockets of preserved habitat within developed landscapes.
4
Investor attention amplifies biodiversity effects
Using Google Trends data as a proxy for attention, the study finds that pricing effects are significantly stronger in states and years where biodiversity interest is high. Where attention is low, biodiversity has little or no effect on property pricing, supporting the interpretation that changing preferences drives the results.
5
Causality runs from biodiversity to prices, not the reverse
Instrumental variable tests show that higher property prices do not lead to improved biodiversity, which rules out reverse causality and reinforces that biodiversity is shaping, not responding to, asset prices.
Why this matters for investors
Biodiversity is a priced financial asset
Markets increasingly value biodiversity, particularly at the regional scale. This aligns with shifting societal preferences and regulatory momentum around nature-related financial risks.
Nature loss generates short-term gains but long-term costs
While development-driven loss of biodiversity may raise property-level values, these benefits are weakening over time as preferences shift towards conservation. Preserving habitat and species richness is becoming financially advantageous.
Portfolio risk exposures will change as biodiversity preferences strengthen
With growing investor and consumer attention, assets situated in ecologically degraded areas may face future repricing risks, while those in biodiverse areas could enjoy enhanced resilience and premium valuation.
The results provide a benchmark for pricing biodiversity
Policymakers, ESG analysts and financial institutions can use these findings to inform nature-risk assessments, asset valuation models and biodiversity-aligned investment strategies.
Conclusion
This research shows that biodiversity is now a priced feature of US real estate markets, shaping asset values in distinct ways across spatial scales. Property-level biodiversity loss raises prices by enabling development, while regional biodiversity enhances values as a desirable environmental amenity. Biodiversity variation nearby also boosts pricing and these effects strengthen when public attention is high. As preferences shift toward conservation, ecological quality increasingly influences valuation, making biodiversity a meaningful financial factor for investors, asset owners and policymakers navigating nature-related risks.
Biodiversity and natural resource finance
Discover how the latest research is shaping the future of biodiversity and natural resource finance. The Centre for Endowment Asset Management explores innovative financial solutions to address global environmental challenges and promote sustainable investment.
Related paper
Cornaggia, J., Iliev, P., Liang, Y.-H. and Wang, Q. (2026) “Biodiversity and local asset values” Review of Finance