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Housing Market Response to New Flood Risk Information and the Impact on Poor Tenant

Author

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  • Donggyu Yi

    (University of Seoul)

  • Hyundo Choi

    (Chosun University)

Abstract

This study examines how house prices were affected by the great Iowa flood of 2008. Transaction data on Des Moines’ housing market from 2000 to 2012 are used to estimate a hedonic property price function for the region. Both difference-in-differences and triple differences techniques with boundary dummies are used to isolate the impact of the 2008 flood. The main results are as follows. First, the price discount effect of pre-flood risk information is reconfirmed; however, it is overestimated when unobservable neighborhood effects are not controlled for. Second, unexpected inundation during the flood also leads to price discounting. Finally, we find a significant rebounding effect for post-flood prices in the 100-year floodplain areas not actually inundated, while there was no significant change in the 100-year floodplains actually inundated. These findings imply that the housing market updates the risk perception of properties when it receives new flood information. Meanwhile, this price change can affect the income distribution by increasing rents in areas in which the poor usually reside, offering policymakers some insights into how to formulate disaster-related policies.

Suggested Citation

  • Donggyu Yi & Hyundo Choi, 2020. "Housing Market Response to New Flood Risk Information and the Impact on Poor Tenant," The Journal of Real Estate Finance and Economics, Springer, vol. 61(1), pages 55-79, June.
    • Handle: RePEc:kap:jrefec:v:61:y:2020:i:1:d:10.1007_s11146-019-09704-0
    DOI: 10.1007/s11146-019-09704-0
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    3. Quyen Nguyen & Paul Thorsnes & Ivan Diaz‐Rainey & Antoni Moore & Simon Cox & Leon Stirk‐Wang, 2022. "Price recovery after the flood: risk to residential property values from climate change‐related flooding," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(3), pages 532-560, July.
    4. Yasuhiro Sato & Keita Shiba, 2021. "The impact of Tsunamis on land appraisals: Evidence from Western Japan," PLOS ONE, Public Library of Science, vol. 16(4), pages 1-14, April.
    5. Elie Bouri & Rangan Gupta & Hardik A. Marfatia & Jacobus Nel, 2022. "Do Climate Risks Predict US Housing Returns and Volatility? Evidence from a Quantiles-Based Approach," Working Papers 202240, University of Pretoria, Department of Economics.
    6. Renee van Eyden & Geoffrey Ngene & Oguzhan Cepni & Rangan Gupta, 2022. "The Heterogeneous Impact of Temperature Growth on Real House Price Returns across the US States," Working Papers 202236, University of Pretoria, Department of Economics.

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