Housing Shadow Prices in an Inundation-prone Suburb

For flood-prone urban areas, the prospect of increasing population densities and more frequent extreme weather associated with climate change is alarming. Proactive adaptation can reduce potential flood risks in theory. However, there is limited empirical economics exploring this issue, without which convincing residents within exposed areas to participate in adaptation is challenging. In this paper, a hedonic model is presented of property prices for a flood-prone inner-city suburb of Brisbane, Australia. The study defines a continuous flood-risk variable based on the vertical distances of properties relative to a flood level that occurs on average once every 100 years. The results show significant property-price discounting of 5.5 per cent per metre below the defined flood level. Detailed hedonic characteristics also provided shadow price estimates of housing characteristics and distances to amenities (such as bus-stops, train-stations, parks and bikeways) and these hedonics need to be considered when holistically assessing the dynamics of suburbs for adaptation planning.