Flood risk awareness and property values: evidences from Seoul, South Korea

Abstract

ABSTRACT There is ongoing debate about flood risk discounts regarding property values. While some researchers claim that housing prices reflect flood risk, a growing body of literature has shown that flood risk is quickly forgotten after a flood event, and risk discounts are minimal in the long term. This study provides new evidence of flood risk discounts, with an emphasis on the role of flood risk awareness based on the case of Seoul, South Korea. This paper empirically examines how flood risk discounts vary depending on past flood experiences, and analyzes whether they are affected by the disclosure of inundation hazard maps. According to the results, flood risk discounts are disproportionally higher in districts with severe past flood experiences, but interestingly, there is no evidence that negative disclosure effects of hazard information on property values exist. These findings imply that home buyers carefully consider flood risk in their housing transactions in high flood risk areas, even before hazard maps become available, possibly because having flood insurance is rare in South Korea. Understanding the relationship between flood risk awareness and risk discounts in terms of property values has vital implications for disaster management policies as they relate to cities’ resilience. HIGHLIGHTS The flood risk discount in property values could be affected by the risk awareness. The risk discount is disproportionally high in areas with severe flooding experience. Negative disclosure effects of hazard map on property values do not exist in Seoul. Hazard disclosure could be actively used considering the level of the risk awareness.