Putting a Price on Safety — A Hedonic Price Approach to Flood Risk in African Cities

This paper uses a hedonic propertyprice function to estimate the relationship between flood risk and rents in four Sub-Saharan Africa cities: Accra,Antananarivo, Dar es Salaam, and Addis Ababa. The analysis relies on household survey data collected after flood eventsin the cities. Flood risk is measured with self-reported data on past flood exposure and perception of future risk offlooding of households. The study finds that flood risk is associated with lower rents in Accra, Antananarivo, andAddis Ababa, ranging from 14 to 56 percent lower. In contrast, risk is associated with higher rent in Dar esSalaam, which could be potentially attributed to a combination of lack of awareness of flood risk amongrenters, high transaction costs and omitted variable bias. For example, only 12 percent of households living inflood-prone areas were aware of the flood risk when they moved in. In Antananarivo, job density is associated withhigher rents while in Accra and Addis Ababa, higher job density is associated with lower rents. Results are negativebut not significant in Dar es Salaam. When interacting job density with flood risk for each city, the negative effectof job density on rents is higher (in absolute value) when flood risk is high in Accra and Addis Ababa, and thepositive effect of job density on rents becomes negative when flood risk is high in Antananarivo. This relationshipis not found in Dar es Salaam. The finding seems to suggest that access to jobs is a factor driving people to settle inflood-prone areas.