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Capitalized value of evolving flood risks discount and nature-based solution premiums on property prices

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  • Mutlu, Asli
  • Roy, Debraj
  • Filatova, Tatiana

Abstract

Nature-based solutions (NbS) are a cornerstone of climate change adaptation worldwide. Yet, evidence on their economic benefits is scarce, especially since the provided environmental amenities usually spatially correlate with climate-induced hazards, effects of which NbS aim to curb. This lack of empirical evidence creates obscurity regarding social acceptability of NbS, hindering their uptake and upscaling. We apply hedonic price models to estimate homeowners' willingness-to-pay for NbS, which offer flood safety and environmental benefits, while controlling for spatio-temporal changes in capitalized flood risk discounts due to the 1993-1995 floods in the Limburg Province, the Netherlands. We reveal a pre-flood effect of 5.6% (discounting on average -€12,753 for flood-prone properties), which rises to 10.9% (−€24,691 on average) immediately after the floods. However, the effect is only transitory. The flood discount of home values diminishes over time and eventually vanishes in 9–12 years, which coincides with the implementation of the largest and oldest NbS intervention in the Netherlands. Our analysis shows that NbS amenities provide a 15% (€33,687 on average) premium to nearby residential property prices. This evidence of the evolving flood risk discount and the stable NbS premium for individual homeowners could support the economic feasibility and wide acceptability of NbS for climate change adaptations.

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  • Mutlu, Asli & Roy, Debraj & Filatova, Tatiana, 2023. "Capitalized value of evolving flood risks discount and nature-based solution premiums on property prices," Ecological Economics, Elsevier, vol. 205(C).
    • Handle: RePEc:eee:ecolec:v:205:y:2023:i:c:s0921800922003433
    DOI: 10.1016/j.ecolecon.2022.107682
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