Market Response to Flood Risk: An Empirical Study of Housing Values Using Boundary Discontinuities
Haoying Wang ()
MPRA Paper from University Library of Munich, Germany
This paper presents one of the first studies on flood risk evaluation in the US Northeast - a region where we are likely going to see increasing precipitation variability and associated risk of flood in the coming decades. In the paper, a spatial difference-in-differences framework based on floodplain boundary discontinuities is proposed to control for unobserved heterogeneities. Using parcel-level data from Juniata County and Perry County in Pennsylvania, the paper finds that on average there is a 5-6 percent housing value reduction due to exposure to 1 percent annual chance of flooding within the FEMA (Federal Emergency Management Agency) 100-year flood zone. For Juniata County, it shows that on average there is a $3.28/sqft (in 2015 USD) discount for a full-time SFR (single family residential) property located within the flood zone. For an average housing unit of 1430 sqft living space in the sample, the estimate translates to a $4690 housing value reduction. For Perry County, the corresponding estimates are $4.00/sqft (in 2015 USD) and $6320 for an average housing unit of 1580 sqft. The paper also shows that with similar specifications, a standard hedonic price model underestimates the flood risk impact on housing value by a substantial amount as a result of failing to control for unobserved heterogeneities.
Keywords: Flood Risk; Natural Hazards; Housing Value; Housing Market; Boundary Discontinuity; Susquehanna River Basin (search for similar items in EconPapers)
JEL-codes: C1 H84 Q5 R3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env and nep-ure
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