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Housing Prices and Flood Risk: An Examination Using Spline Regression


  • Speyrer, Janet Furman
  • Ragas, Wade R


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

Suggested Citation

  • Speyrer, Janet Furman & Ragas, Wade R, 1991. "Housing Prices and Flood Risk: An Examination Using Spline Regression," The Journal of Real Estate Finance and Economics, Springer, vol. 4(4), pages 395-407, December.
  • Handle: RePEc:kap:jrefec:v:4:y:1991:i:4:p:395-407

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    References listed on IDEAS

    1. Williams, Joseph T, 1993. "Equilibrium and Options on Real Assets," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 825-850.
    2. Majd, Saman & Pindyck, Robert S., 1987. "Time to build, option value, and investment decisions," Journal of Financial Economics, Elsevier, vol. 18(1), pages 7-27, March.
    3. Ko Wang & Yuqing Zhou, 2006. "Equilibrium Real Options Exercise Strategies with Multiple Players: The Case of Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(1), pages 1-49, March.
    4. Capozza, Dennis R. & Helsley, Robert W., 1990. "The stochastic city," Journal of Urban Economics, Elsevier, vol. 28(2), pages 187-203, September.
    5. Huisman, K.J.M. & Kort, P.M. & Pawlina, G. & Thijssen, J.J.J., 2003. "Strategic Investment Under Uncertainty : Merging Real Options with Game Theory," Discussion Paper 2003-6, Tilburg University, Center for Economic Research.
    6. Capozza, Dennis R & Sick, Gordon A, 1991. "Valuing Long-Term Leases: The Option to Redevelop," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 209-223, June.
    7. Lambrecht, Bart & Perraudin, William, 2003. "Real options and preemption under incomplete information," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 619-643, February.
    8. Paul D. Childs & Steven H. Ott & Timothy J. Riddiough, 2002. "Optimal Valuation of Claims on Noisy Real Assets: Theory and an Application," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(3), pages 415-443.
    9. Capozza, Dennis R. & Helsley, Robert W., 1989. "The fundamentals of land prices and urban growth," Journal of Urban Economics, Elsevier, vol. 26(3), pages 295-306, November.
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    Cited by:

    1. Patrick C. Flower & Wade R. Ragas, 1994. "The Effects of Refineries on Neighborhood Property Values," Journal of Real Estate Research, American Real Estate Society, vol. 9(3), pages 319-338.
    2. de Koning, Koen & Filatova, Tatiana & Bin, Okmyung, 2017. "Bridging the Gap Between Revealed and Stated Preferences in Flood-prone Housing Markets," Ecological Economics, Elsevier, vol. 136(C), pages 1-13.
    3. Carolyn Kousky, 2010. "Learning from Extreme Events: Risk Perceptions after the Flood," Land Economics, University of Wisconsin Press, vol. 86(3).
    4. Okmyung Biny & Stephen Polasky, 2004. "Effects of Flood Hazards on Property Values: Evidence Before and After Hurricane Floyd," Land Economics, University of Wisconsin Press, vol. 80(4).
    5. Alicia N. Rambaldi & Cameron S. Fletcher & Kerry Collins & Ryan R.J. McAllister, 2013. "Housing Shadow Prices in an Inundation-prone Suburb," Urban Studies, Urban Studies Journal Limited, vol. 50(9), pages 1889-1905, July.
    6. Daniel Sutter & Marc Poitras, 2010. "Do people respond to low probability risks? Evidence from tornado risk and manufactured homes," Journal of Risk and Uncertainty, Springer, vol. 40(2), pages 181-196, April.
    7. Murphy, Anthony & Strobl, Eric, 2009. "The Impact of Hurricanes on Housing Prices: Evidence from US Coastal Cities," MPRA Paper 19353, University Library of Munich, Germany.
    8. Bin, Okmyung, 2004. "A prediction comparison of housing sales prices by parametric versus semi-parametric regressions," Journal of Housing Economics, Elsevier, vol. 13(1), pages 68-84, March.
    9. Michael LaCour-Little & Arsenio Staer, 2016. "Earthquakes and Price Discovery in the Housing Market: Evidence from New Zealand," International Real Estate Review, Asian Real Estate Society, vol. 19(4), pages 493-513.
    10. Russell McKenzie & John Levendis, 2010. "Flood Hazards and Urban Housing Markets: The Effects of Katrina on New Orleans," The Journal of Real Estate Finance and Economics, Springer, vol. 40(1), pages 62-76, January.
    11. Daniel, Vanessa E. & Florax, Raymond J.G.M. & Rietveld, Piet, 2009. "Flooding risk and housing values: An economic assessment of environmental hazard," Ecological Economics, Elsevier, vol. 69(2), pages 355-365, December.
    12. James R. Meldrum, 2016. "Floodplain Price Impacts by Property Type in Boulder County, Colorado: Condominiums Versus Standalone Properties," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(4), pages 725-750, August.
    13. Ajita Atreya & Susana Ferreira & Warren Kriesel, 2013. "Forgetting the Flood? An Analysis of the Flood Risk Discount over Time," Land Economics, University of Wisconsin Press, vol. 89(4), pages 577-596.
    14. repec:spr:masfgc:v:23:y:2018:i:2:d:10.1007_s11027-015-9667-7 is not listed on IDEAS
    15. Atreya, Ajita & Ferreira, Susana, 2012. "Spatial Variation in Flood Risk Perception: A Spatial Econometric Approach," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124863, Agricultural and Applied Economics Association.

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