The effect of flood risk on property values around Paris

We examine the effect of flood risk regulation on property prices in the inner suburbs of Paris, France. Increased flood risk is one of the major consequences of climate change, and it is already a current risk for populations in some areas of Southern and Western France. The Ile-de-France region is highly exposed to the risk of a major flood of the Seine River. About 830 000 people and 620 000 jobs would be directly affected if a flood similar to the historic event of 1910 would occur (IAU, 2011; OECD,2013). A large literature has examined the impact of actual floods with a surprisingly large variation in results. Only a few studies have investigated the effect of information about flood risk (Harrison et al., 2001; Troy and Romm, 2004; Hallstrom and Smith, 2005; Pope, 2008; Rajapaksa et al., 2016), as opposed to the direct economic impact of flood damage. It is not easy to separate the effect of information on flood risk, as such, as flood prone areas by definition also are likely to suffer recurrent flooding. Since a major role of flood risk regulation is to inform actors in the real estate markets about the actual risk, it is important for policy purposes to evaluate the reaction to information on flood risk separately from any damage from actual floods. The inner suburbs around Paris offer a unique opportunity to do so, since there is high flood risk, but no major flood occurred during the period analysed in the paper. In this article, we study the impact of information on flood risk released through the implementation of the French regulation on flood risk prevention plans (PPRi). The objective of the paper is to test whether information on flood risk has an impact on the price of the real estate transactions in the inner suburbs of Paris over the period 2003 to 2012. During the period, it can be assumed that past flood events were not salient to buyers and sellers in the region, since the last major flood of the Seine river at the time was the 50-year flood of 1955. The more recent ten-year floods of 2016 and 2018 occurred after the period of the study. This avoids a confounding direct effect on prices of flood itself and permits us to argue that we identify only an effect of flood risk information on price.