Holding back the storm: Dam capitalization in residential and commercial property values

Large-scale flooding is becoming increasingly common due to prolonged and intensive rainfall caused by climate change. Communities have mitigated this risk by building flood protection, though it is unclear whether residents are aware of these public works or the protection they confer. We provide insight on this matter by examining whether apartment, commercial, and single-family home values responded to the completion of the Gokayama Dam in Fukuoka Prefecture, Japan. Using listing data between 2015 and 2019, we find apartments downstream from the Gokayama Dam experienced a 1.8% price increase relative to apartments in other floodplains after Typhoon Prapiroon hit western Japan and tested the dam. Renters used the natural disaster as a learning experience to update their perceptions of flood risk as opposed to the completion of the dam, suggesting a possible disconnect between perceptions of flood risk and objective risk. Higher price premiums are also observed in first floor units, units closer to rivers, and in areas where floodwaters are expected to exceed 2 m, while rental units designed as temporary housing received no premium. Finally, we find the capitalized gains from the apartment rental market are small in comparison to premiums paid by homeowners and commercial renters, where prices increased by 11.7% and 9.2% respectively. Taken altogether, the Gokayama Dam provides $146.5 million in downstream benefits each year, though it is unclear how long these price effects will last.