Price recovery after the flood: risk to residential property values from climate change‐related flooding*

Abstract

We take advantage of a combination of a severe weather event from 3 to 4 June 2015 and a local policy, to investigate the housing market response to climate change‐related flooding hazard. The study focuses on a residential area in a low‐lying coastal suburb of Dunedin, New Zealand, where the groundwater level is shallow and close to sea level. An unusually heavy rain event in June 2015 resulted in flooding of a significant portion of land in especially low‐lying areas. The city council responded by reviewing processes for storm‐water management and by imposing minimum‐floor‐level [MFL] requirements on new construction in the low‐lying areas previously identified as at risk of flooding. Applying a ‘diff‐in‐diff‐in‐diff’ strategy in hedonic regression analyses, we find that houses in the MFL zone sell for a discount of about 5 per cent prior to the flood. This discount briefly tripled in the area that flooded, but disappeared within 15 months, indicating either very short memory among homebuyers or no long‐run change in perception of hazard.