IDEAS home Printed from https://ideas.repec.org/a/eee/ecolec/v69y2009i2p355-365.html
   My bibliography  Save this article

Flooding risk and housing values: An economic assessment of environmental hazard

Author

Listed:
  • Daniel, Vanessa E.
  • Florax, Raymond J.G.M.
  • Rietveld, Piet

Abstract

Climate change, the 'boom and bust' cycles of rivers, and altered water resource management practice have caused significant changes in the spatial distribution of the risk of flooding. Hedonic pricing studies, predominantly for the US, have assessed the spatial incidence of risk and the associated implicit price of flood risk. Using these implicit price estimates and their associated standard errors, we perform a meta-analysis and find that an increase in the probability of flood risk of 0.01 in a year is associated to a difference in transaction price of an otherwise similar house of -Â 0.6%. The actual occurrence of a flooding event or increased stringency in disclosure rules causes ex-ante prices to differ from ex-post prices, but these effects are small. The marginal willingness to pay for reduced risk exposure has increased over time, and it is slightly lower for areas with a higher per capita income. We show that obfuscating amenity effects and risk exposure associated with proximity to water causes systematic bias in the implicit price of flood risk.

Suggested Citation

  • Daniel, Vanessa E. & Florax, Raymond J.G.M. & Rietveld, Piet, 2009. "Flooding risk and housing values: An economic assessment of environmental hazard," Ecological Economics, Elsevier, vol. 69(2), pages 355-365, December.
    • Handle: RePEc:eee:ecolec:v:69:y:2009:i:2:p:355-365
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0921-8009(09)00322-X
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Arianne de Blaeij & Raymond J.G.M. Florax & Piet Rietveld & Erik T. Verhoef, 2000. "The Value of Statistical Life in Road Safety: A Meta-Analysis," Tinbergen Institute Discussion Papers 00-089/3, Tinbergen Institute.
    2. Raymond J. G. M. Florax & Chiara M. Travisi & Peter Nijkamp, 2005. "A meta-analysis of the willingness to pay for reductions in pesticide risk exposure," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 32(4), pages 441-467, December.
    3. Terrance R. Skantz & Thomas H. Strickland, 1987. "House Prices and a Flood Event: An Empirical Investigation of Market Efficiency," Journal of Real Estate Research, American Real Estate Society, vol. 2(2), pages 75-83.
    4. Okmyung Bin & Jamie Brown Kruse & Craig E. Landry, 2008. "Flood Hazards, Insurance Rates, and Amenities: Evidence From the Coastal Housing Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(1), pages 63-82, March.
    5. Maria Abreu & Henri L. F. de Groot & Raymond J. G. M. Florax, 2005. "A Meta‐Analysis of β‐Convergence: the Legendary 2%," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 389-420, July.
    6. Card, David & Krueger, Alan B, 1995. "Time-Series Minimum-Wage Studies: A Meta-analysis," American Economic Review, American Economic Association, vol. 85(2), pages 238-243, May.
    7. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    8. Luke Brander & Raymond Florax & Jan Vermaat, 2006. "The Empirics of Wetland Valuation: A Comprehensive Summary and a Meta-Analysis of the Literature," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(2), pages 223-250, February.
    9. Shilling, James D. & Sirmans, C. F. & Benjamin, John D., 1989. "Flood insurance, wealth redistribution, and urban property values," Journal of Urban Economics, Elsevier, vol. 26(1), pages 43-53, July.
    10. Browne, Mark J & Hoyt, Robert E, 2000. "The Demand for Flood Insurance: Empirical Evidence," Journal of Risk and Uncertainty, Springer, vol. 20(3), pages 291-306, May.
    11. John List & Craig Gallet, 2001. "What Experimental Protocol Influence Disparities Between Actual and Hypothetical Stated Values?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 20(3), pages 241-254, November.
    12. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    13. James M. Holway & Raymond J. Burby, 1990. "The Effects of Floodplain Development Controls on Residential Land Values," Land Economics, University of Wisconsin Press, vol. 66(3), pages 259-271.
    14. Don N. MacDonald & James C. Murdoch & Harry L. White, 1987. "Uncertain Hazards, Insurance, and Consumer Choice: Evidence from Housing Markets," Land Economics, University of Wisconsin Press, vol. 63(4), pages 361-371.
    15. Fridgen, Patrick M. & Shultz, Steven D., 1999. "The Influence Of The Threat Of Flooding On Housing Values In Fargo, North Dakota And Moorhead, Minnesota," Agricultural Economics Reports 23155, North Dakota State University, Department of Agribusiness and Applied Economics.
    16. Wooldridge, Jeffrey M, 1992. "Some Alternatives to the Box-Cox Regression Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 935-955, November.
    17. Kurt J. Beron & James C. Murdoch & Mark A. Thayer & Wim P. M. Vijverberg, 1997. "An Analysis of the Housing Market before and after the 1989 Loma Prieta Earthquake," Land Economics, University of Wisconsin Press, vol. 73(1), pages 101-113.
    18. David M. Harrison & Greg T. Smersh & Arthur L. Schwartz, Jr, 2001. "Environmental Determinants of Housing Prices: The Impact of Flood Zone Status," Journal of Real Estate Research, American Real Estate Society, vol. 21(1/2), pages 3-20.
    19. Rick L. Williams, 2000. "A Note on Robust Variance Estimation for Cluster-Correlated Data," Biometrics, The International Biometric Society, vol. 56(2), pages 645-646, June.
    20. Raymond J.G.M. Florax & Peter Nijkamp & Kenneth G. Willis (ed.), 2002. "Comparative Environmental Economic Assessment," Books, Edward Elgar Publishing, number 1945.
    21. Won Kim, Chong & Phipps, Tim T. & Anselin, Luc, 2003. "Measuring the benefits of air quality improvement: a spatial hedonic approach," Journal of Environmental Economics and Management, Elsevier, vol. 45(1), pages 24-39, January.
    22. Jerald R. Barnard, 1978. "Externalities from Urban Growth: The Case of Increased Storm Runoff and Flooding," Land Economics, University of Wisconsin Press, vol. 54(3), pages 298-315.
    23. Lewis, Jeffrey B. & Linzer, Drew A., 2005. "Estimating Regression Models in Which the Dependent Variable Is Based on Estimates," Political Analysis, Cambridge University Press, vol. 13(4), pages 345-364.
    24. Okmyung Bin & Thomas W. Crawford & Jamie B. Kruse & Craig E. Landry, 2008. "Viewscapes and Flood Hazard: Coastal Housing Market Response to Amenities and Risk," Land Economics, University of Wisconsin Press, vol. 84(3), pages 434-448.
    25. T. D. Stanley, 2005. "Beyond Publication Bias," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 309-345, July.
    26. Halvorsen, Robert & Palmquist, Raymond, 1980. "The Interpretation of Dummy Variables in Semilogarithmic Equations," American Economic Review, American Economic Association, vol. 70(3), pages 474-475, June.
    27. Speyrer, Janet Furman & Ragas, Wade R, 1991. "Housing Prices and Flood Risk: An Examination Using Spline Regression," The Journal of Real Estate Finance and Economics, Springer, vol. 4(4), pages 395-407, December.
    28. Smith, V Kerry & Huang, Ju-Chin, 1995. "Can Markets Value Air Quality? A Meta-analysis of Hedonic Property Value Models," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 209-227, February.
    29. Austin Troy & Jeff Romm, 2004. "Assessing the price effects of flood hazard disclosure under the California natural hazard disclosure law (AB 1195)," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 47(1), pages 137-162.
    30. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    31. Hallstrom, Daniel G. & Smith, V. Kerry, 2005. "Market responses to hurricanes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 541-561, November.
    32. Okmyung Biny & Stephen Polasky, 2004. "Effects of Flood Hazards on Property Values: Evidence Before and After Hurricane Floyd," Land Economics, University of Wisconsin Press, vol. 80(4).
    33. Jason Abrevaya, 2002. "Computing Marginal Effects In The Box-Cox Model," Econometric Reviews, Taylor & Francis Journals, vol. 21(3), pages 383-393.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James R. Meldrum, 2016. "Floodplain Price Impacts by Property Type in Boulder County, Colorado: Condominiums Versus Standalone Properties," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(4), pages 725-750, August.
    2. Carolyn Kousky, 2010. "Learning from Extreme Events: Risk Perceptions after the Flood," Land Economics, University of Wisconsin Press, vol. 86(3).
    3. Beltrán, Allan & Maddison, David & Elliott, Robert, 2019. "The impact of flooding on property prices: A repeat-sales approach," Journal of Environmental Economics and Management, Elsevier, vol. 95(C), pages 62-86.
    4. 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).
    5. Donadelli, M. & Jüppner, M. & Paradiso, A. & Ghisletti, M., 2020. "Tornado activity, house prices, and stock returns," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    6. Beltrán, Allan & Maddison, David & Elliott, Robert J R, 2018. "Is Flood Risk Capitalised Into Property Values?," Ecological Economics, Elsevier, vol. 146(C), pages 668-685.
    7. Bin, Okmyung & Landry, Craig E., 2013. "Changes in implicit flood risk premiums: Empirical evidence from the housing market," Journal of Environmental Economics and Management, Elsevier, vol. 65(3), pages 361-376.
    8. de Koning, Koen & Filatova, Tatiana & Bin, Okmyung, 2017. "Bridging the Gap Between Revealed and Stated Preferences in Flood-prone Housing Markets," Ecological Economics, Elsevier, vol. 136(C), pages 1-13.
    9. Daniel R. Petrolia & Craig E. Landry & Keith H. Coble, 2013. "Risk Preferences, Risk Perceptions, and Flood Insurance," Land Economics, University of Wisconsin Press, vol. 89(2), pages 227-245.
    10. Ajita Atreya & Susana Ferreira & Warren Kriesel, 2013. "Forgetting the Flood? An Analysis of the Flood Risk Discount over Time," Land Economics, University of Wisconsin Press, vol. 89(4), pages 577-596.
    11. Georgic, Will & Klaiber, H. Allen, 2022. "Stocks, flows, and flood insurance: A nationwide analysis of the capitalized impact of annual premium discounts on housing values," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    12. Samarasinghe, Oshadhi & Sharp, Basil M.H., 2008. "Flood prone risk and amenity values: a spatial hedonic analysis," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6013, Australian Agricultural and Resource Economics Society.
    13. Athanasios Votsis & Adriaan Perrels, 2016. "Housing Prices and the Public Disclosure of Flood Risk: A Difference-in-Differences Analysis in Finland," The Journal of Real Estate Finance and Economics, Springer, vol. 53(4), pages 450-471, November.
    14. Lei Zhang & Tammy Leonard, 2019. "Flood Hazards Impact on Neighborhood House Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 58(4), pages 656-674, May.
    15. Qiu, Yun & Gopalakrishnan, Sathya, 2018. "Shoreline defense against climate change and capitalized impact of beach nourishment," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 134-147.
    16. Wang, Haoying, 2017. "Market Response to Flood Risk: An Empirical Study of Housing Values Using Boundary Discontinuities," MPRA Paper 85493, University Library of Munich, Germany.
    17. Ajita Atreya & Susana Ferreira, 2015. "Seeing is Believing? Evidence from Property Prices in Inundated Areas," Risk Analysis, John Wiley & Sons, vol. 35(5), pages 828-848, May.
    18. Koen de Koning & Tatiana Filatova & Okmyung Bin, 2019. "Capitalization of Flood Insurance and Risk Perceptions in Housing Prices: An Empirical Agent‐Based Model Approach," Southern Economic Journal, John Wiley & Sons, vol. 85(4), pages 1159-1179, April.
    19. Netusil, Noelwah R. & Moeltner, Klaus & Jarrad, Maya, 2019. "Floodplain designation and property sale prices in an urban watershed," Land Use Policy, Elsevier, vol. 88(C).
    20. Singh, Ruchi, 2019. "Seismic risk and house prices: Evidence from earthquake fault zoning," Regional Science and Urban Economics, Elsevier, vol. 75(C), pages 187-209.

    More about this item

    Keywords

    Valuation Environmental risk Meta-analysis Hedonic pricing;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:69:y:2009:i:2:p:355-365. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolecon .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.