Housing Prices and Flood Risk: An Examination Using Spline Regression
This article examines the impact of flood risk and mandatory flood insurance on property values. Using a large data set of almost 2,000 homes sold in the New Orleans, Louisiana, area from 1971 through 1986, the analysis confirms the finding of earlier studies that location in a floodplain does reduce property values. The present study, using spline variables to adjust for locational variation in the data and an improved measure of insurance cost, reveals that much of this reduction can be attributed to mandatory flood insurance coverage. Moreover, while unexpected flooding does increase the insurance cost capitalization, repeated flooding does not seem to reduce property values further. Copyright 1991 by Kluwer Academic Publishers
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