A City under Water: A Geospatial Analysis of Storm Damage, Changing Risk Perceptions, and Investment in Residential Housing

Shawn J. McCoy and Xiaoxi Zhao

Journal of the Association of Environmental and Resource Economists, 2018, vol. 5, issue 2, 301 - 330

Abstract: We examine the relationships between hurricanes, flood risk saliency, and residential property investment. Our analysis utilizes data detailing capital investment projects in homes matched to spatial data delineating the locations of structures damaged by Hurricane Sandy. Utilizing a difference-in-differences estimation strategy, we estimate a significant increase in the probability a homeowner invests in a damaged building located in a flood risk area. However, we fail to detect a statistically significant change in the rate of investment among damaged properties outside of these areas. We investigate the mechanisms through which a hurricane may influence households’ perceptions of risk by modeling changes in investment between properties in and out of flood risk zones restricting attention to the set of structures that failed to experience any storm damage. Model results suggest that while a recent storm may increase perceived risks, the spatial path of storm damage is an important mechanism driving these changes.

Date: 2018
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