Abstract
Existing studies that estimate losses in home values due to being located in a designated flood zone, such as a Special Flood Hazard Area (SFHA) in the U.S., focus exclusively on either coastal or interior regions, or include both, but do not estimate separate risk effects. Using a rich data set on home sales for five counties in Connecticut, controlling for a plethora of potentially confounding effects, and applying state-of-the art doubly-robust matching methods, we show that SFHA-related risk losses can vary dramatically by location relative to the coast line, with near-coastal losses exceeding interior effects by sevenfold. We take this as evidence that home buyers hold beliefs of elevated flood risks in coastal zones, even though the official Flood Insurance Rate Map designation for those homes is identical to that of interior counterparts. To the extent that these beliefs align with objective risks, our results provide ammunition for calls for a more spatially refined rate setting policy for federal flood insurance.
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