Flood Hazards Impact on Neighborhood House Prices

Abstract

This study estimated the effect of flood hazards on residential property values by applying a hedonic price model to house sale data from 2007 to 2013 in the Fargo-Moorhead Metropolitan Statistical Area. A difference-in-difference framework was used to estimate changes in the price discount associated with houses located within a 100-year floodplain. We investigated how this price discount changed following a major flood event, providing empirical insight into how flood risk was perceived by homebuyers. We also estimated how the price discount varied as the control group was composed of houses increasingly further from the 100-year floodplain. Our results suggest that the flood price discount varies both temporally and spatially. Particularly in the year following a major and non-major flood event, the price discount increased by over 13%. Additionally, the estimated price discount when comparing properties inside the floodplain to those 1000–1500 ft from the floodplain was 8.6 percentage points higher (in absolute value) than the estimated price discount when comparing properties inside the floodplain to those immediately outside the 100-year floodplain.