Flood Risk Perception in the Housing Market and the Impact of a Major Flood Event

Hannah Hennighausen,Jordan F Suter

doi:10.3368/le.96.3.366

Hannah Hennighausen, Jordan F Suter

Open Access

https://doi.org/10.3368/le.96.3.366

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Journal: Land Economics	Publication Date: Jun 24, 2020
Citations: 15	License type: cc-by

Affiliation: University of Graz, Colorado State University

Abstract

The impact of flood events on flood risk perception has important implications for policy. Applying a novel dataset featuring the flooding extents from a severe event in Colorado, we disentangle inundated properties from “near misses,” defined as structures not directly flooded but located inside the 100-year floodplain. Using a triple-difference hedonic framework, we show that inundated properties inside the floodplain underwent a decrease in price after the flood, while near misses saw a relative price increase. We speculate that inundated properties are perceived as being riskier and near misses relatively less risky, suggesting the possible influence of the availability heuristic or Bayesian learning.

Highlights

Floods are the most common natural disaster type worldwide
The overall aim of the National Flood Insurance Program (NFIP) is to Previous studies have largely shown that price gaps exist across flood hazard zones, suggesting that home buyers respond to flood insurance mandates and/or risk information
This paper examines the effect of the NFIP in combination with an actual flood event on

Summary

Introduction

Floods are the most common natural disaster type worldwide. Between 1995 and 2015, 2.3 billion people were affected by floods, considerably more than any other type of natural disaster event (CRED 2015). 7% of all land in the United States is designated as having a significant level of flood risk (Holway and Burby 1990), and development in these risky areas explains some of the high costs associated with flooding. The NFIP was crafted in the 1960s in response to the rising costs of ad hoc postdisaster relief legislation, America’s first billion-dollar hurricane, significant population growth in flood-prone areas, as well as the influential voice of prominent geographer Gilbert White (American Institutes for Research 2005). White helped design the NFIP and, together with the Task Force on Federal Flood Policy, emphasized in their reports that flood insurance must serve two purposes: (1) offer financial relief to those impacted by flood events and (2) have influence on land use and its development (or restriction thereof) (White 1958)

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