The Impact of Distant Hurricanes on Perception of Flood Risk in Local Housing Markets

Abstract

This study investigates whether the local housing markets can be affected by the occurrence of a large-scale but distant hurricane without direct impact. Using a dataset of residential transactions in Miami-Dade County, FL between 2005 and 2014, we find that the impact of a property’s flood risk exposure on its value varies over time, with a price penalty of 4% in hurricane striking period. By contrast, within a quiet hurricane period, properties within high flood hazard zones demand a price premium ranging roughly from 4% to 6%, which may represent the price impact of water-related amenities. The premium declined significantly upon Hurricane Sandy. Several possible explanations are provided and tested to explain the main findings. Our findings indicate that the occurrence of a disastrous hurricane which impacted faraway regions also raised local home buyers’ perception of flood risk, but for a short period of time (one quarter).