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The Effects of Flood Insurance on Housing Markets

Author

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  • Indaco, Agustín

    () (CUNY Graduate Center)

  • Ortega, Francesc

    () (Queens College, CUNY)

  • Taspinar, Süleyman

    () (Queens College, CUNY)

Abstract

We analyze the role of flood insurance on the housing markets of coastal cities. To do so we have assembled a parcel-level dataset including the universe of residential sales for three coastal urban areas in the United States - Miami-Dade county (2008- 2015), New York city (2003-2016), and Virginia Beach (2000-2016) - matched with their FEMA flood maps, which characterize the flood risk level for each property. First, we compare trends in housing values and sales activity among properties on the floodplain, as defined by the National Flood Insurance Program (NFIP), relative to properties located elsewhere within the same city. Despite the heightened flood risk in the last two decades, we did not find evidence of divergent trends, suggesting that flood insurance may have cushioned the effects of the increase in flood risk. Secondly, we analyze the effects of the recent reforms to the NFIP. In 2012 and 2014, Congress passed legislation that led to important increases in insurance premia and updates of flood maps. We fail to find an effect of increases in premia on the values of floodplain properties in Virginia Beach and Miami-Dade, but we do find evidence of an effect in New York coinciding with the aftermath of hurricane Sandy. We also find some evidence of price changes for properties that experienced a change in risk classification in the new FEMA flood maps. We conclude that the full effects of the 2012-2014 flood insurance reforms have not yet taken place but will probably materialize in the future.

Suggested Citation

  • Indaco, Agustín & Ortega, Francesc & Taspinar, Süleyman, 2018. "The Effects of Flood Insurance on Housing Markets," IZA Discussion Papers 11810, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11810
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    References listed on IDEAS

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    1. Joseph Park & Jayantha Obeysekera & Michelle Irizarry & Jenifer Barnes & Paul Trimble & Winifred Park-Said, 2011. "Storm surge projections and implications for water management in South Florida," Climatic Change, Springer, vol. 107(1), pages 109-128, July.
    2. Laura A. Bakkensen & Lint Barrage, 2017. "Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics: Going Under Water?," NBER Working Papers 23854, National Bureau of Economic Research, Inc.
    3. David M. Harrison & Greg T. Smersh & Arthur L. Schwartz, Jr, 2001. "Environmental Determinants of Housing Prices: The Impact of Flood Zone Status," Journal of Real Estate Research, American Real Estate Society, vol. 21(1/2), pages 3-20.
    4. W.J. Wouter Botzen & Howard Kunreuther & Erwann Michel-Kerjan, 2015. "Divergence between individual perceptions and objective indicators of tail risks: Evidence from floodplain residents in New York City," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 10(4), pages 365-385, July.
    5. Hallstrom, Daniel G. & Smith, V. Kerry, 2005. "Market responses to hurricanes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 541-561, November.
    6. Okmyung Bin & Jamie Brown Kruse & Craig E. Landry, 2008. "Flood Hazards, Insurance Rates, and Amenities: Evidence From the Coastal Housing Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(1), pages 63-82.
    7. 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.
    8. Justin Gallagher, 2014. "Learning about an Infrequent Event: Evidence from Flood Insurance Take-Up in the United States," American Economic Journal: Applied Economics, American Economic Association, vol. 6(3), pages 206-233, July.
    9. repec:eee:juecon:v:106:y:2018:i:c:p:81-100 is not listed on IDEAS
    10. Bin, Okmyung & Landry, Craig E., 2013. "Changes in implicit flood risk premiums: Empirical evidence from the housing market," Journal of Environmental Economics and Management, Elsevier, vol. 65(3), pages 361-376.
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    More about this item

    Keywords

    cities; real estate; climate change; flood insurance;

    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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