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Capitalization of reduced flood risk into housing values following a floodplain restoration investment

Robert Fonner, Germán Izón, Blake E. Feist and Katie Barnas

Journal of Environmental Economics and Policy, 2023, vol. 12, issue 3, 305-323

Abstract: Vast resources are allocated across the US and elsewhere for flood control in floodplains. Increasingly, these efforts involve restoring the function of natural floodplains to attenuate flood risk and provide a range of other ecosystem services. We investigated the capitalization of reduced flood risk from floodplain restoration into housing values in the city of Orting, Washington, USA. Our identification strategy exploits the occurrence of a major high-flow event directly following project construction, which demonstrated the ability of the widened floodplains to attenuate flooding. The prices of homes located within established 100-year or 500-year floodplains were discounted by 3%. Reduced flood risk associated with the floodplain restoration led to a 5% increase in the prices of homes in the 500-year floodplain on average. No evidence of reduced flood risk capitalization was found for homes the 100-year floodplain, where flood insurance rate maps and mandatory insurance requirements remained unchanged across the study period. The results suggest that reduced flood risk associated with floodplain restoration can capitalize into homes outside of designated high-risk zones.

Date: 2023
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DOI: 10.1080/21606544.2022.2136765

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