Does the National Flood Insurance Program Drive Migration to Higher Risk Areas?

Despite the large costs of covering flood losses, little is known about whether the National Flood Insurance Program (NFIP) affects households’ decisions to sort into more flood-prone locations. In this study, we leverage the Federal Emergency Management Agency’s lengthy, plausibly exogenous process of mapping risky communities as a necessary determinant of full entry into the NFIP, thereby granting eligibility to homeowners in these communities for highly subsidized flood insurance. We find that local NFIP availability had an overall positive effect on the population size of communities enrolling into the program and a significantly larger impact on the relatively more flood-prone locations—causing an additional 5% increase in population per one standard deviation increase in historical flood risk. Our findings highlight the potential for publicly subsidized flood insurance to contribute to flood damages by altering incentives to reside in risky areas.