Is flood risk capitalised into property values?

Research output: Contribution to journalArticle

Colleges, School and Institutes

Abstract

Economic theory suggests that, other things being equal, properties located within a floodplain should suffer a price discount. A survey of the existing evidence nonetheless reveals that this price discount lies anywhere between −75.5 percent to a +61.0 percent price premium. The objective of this paper is to summarise and explore the wide variation in the empirical results to obtain ‘best’ estimates with which to guide policy decisions. Results from our meta-analysis comprising 37 published works and 364 point estimates indicate the existence of marked differences between studies according to when and where they were conducted. For coastal regions the results show that properties located in the floodplain command higher prices; this finding is however likely to be caused by a high correlation between omitted coastal amenities and flood risk. There is moreover, some evidence that publication bias affects the coastal flooding literature. Results from meta-regression analyses intended to uncover sources of heterogeneity confirm that controlling for time elapsed since the most recent flood is especially important. For inland flooding the price discount associated with location in the 100-year floodplain is −4.6 percent. Although other estimates are defensible, we suggest this figure be used as a rule of thumb to determine the benefits of flood relief projects to households.

Details

Original languageEnglish
Pages (from-to)668-685
Number of pages18
JournalEcological Economics
Volume146
Early online date21 Dec 2017
Publication statusPublished - Apr 2018

Keywords

  • Flood risk, Hedonic valuation, Meta-analysis, Meta-regression