The cost of floods in developing countries’ megacities: a hedonic price analysis of the Jakarta housing market, Indonesia

Abstract

Although many megacities in developing countries experience floods annually that affect a large number of people, relatively few empirical studies have evaluated the associated costs. This paper estimates such costs by conducting a hedonic price analysis—providing evidence regarding the impacts of floods on the housing market. A robust regression technique on a simple linear transformation model, and a maximum likelihood estimation technique on the spatial lag version of the simple linear transformation model, are utilised to estimate the correlation between the level of the 2007 floods and monthly housing rental prices in Jakarta, Indonesia. This paper sheds light on the fact that in developing countries’ megacities, the total cost of floods among households is significantly lower compared to the total amount of funding needed to permanently eliminate floods in these megacities. Hence, a constant exposure of the urban areas in developing countries to flood damage will most likely keep happening.