EXCESS VULNERABILITY FROM SUBSIDIZED FLOOD INSURANCE: HOUSING MARKET ADAPTATION WHEN PREMIUMS EQUAL EXPECTED FLOOD DAMAGE

Scott J. Colby () and Katherine Y. Zipp
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Scott J. Colby: 107 Otis P. Marshall Hall, South St., Morrisville, NY 13408, USA
Katherine Y. Zipp: Department of Agricultural Economics, Sociology and Education, 112-F Armsby, University Park, PA 16802, USA

Climate Change Economics (CCE), 2021, vol. 12, issue 01, 1-31

Abstract: We calculate there are 8.1% more houses in Allegheny County, PA (Pittsburgh) due to flood insurance subsidies. Conversely, if/when National Flood Insurance Program (NFIP) premiums rise by 50% to equal expected damages, property values will decrease by 8.8% in the short-term, with about half of that recuperated in the long run (4.7%) as quality-adjusted housing stocks contract by 7.5% over decades. This analysis informs community planning and current NFIP revisions that strive to balance solvency and social consequences. Furthermore, our extension of Poterba’s (1984) dynamic user-cost of housing model can be used in integrated assessment models of climate change adaptation.

Keywords: Flood insurance; national flood insurance program; housing; urban economics; market failure; stock flow; housing supply; housing prices; affordability; dynamics (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S2010007820500128

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