Does flood risk affect property prices? Evidence from a property-level flood score

Abstract

One in six properties in England is exposed to flood risk and around half of those affected properties can be characterised as high risk. In this paper we examine whether the probability of flooding is capitalised in England's property market prices. We use unique property-level data from Rightmove, UK's no.1 property website and the property-level FloodScoreTMby Twinn, Royal HaskoningDHV. The latter is a metric of objective flood risk based on the likelihood of an individual property being flooded due to rainfall, overflowing rivers and tidal surges and is commonly used by UK lenders. By comparing the unconditional averages of our data, we find that properties at risk are sold at an 8.14 % discount compared to non-exposed properties, and the price discount increases to 32.2 % for properties with very high flood risk. By 2080 the flood events are expected to become more frequent and the average flood risk is projected to increase by 8 %. Our empirical model suggests that one percentage point increase in properties' flood risk is associated with a decline of 0.07 % to 0.11 % in both sold and asking property prices. The impact is higher for properties of which flood risk is expected to increase or for regions that have recently experienced a flood event.