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Flooding Risk And Housing Values: An Economic Assessment Of Environmental Hazard

Author

Listed:
  • Vanessa E. Daniel

    (Department of Spatial Economics, Vrije Universiteit)

  • Raymond J.G.M. Florax

    (Department of Agricultural Economics, Purdue University)

  • Piet Rietveld

    (Department of Spatial Economics, Vrije Universiteit)

Abstract

Climate change, the ‘boom and bust’ cycles of rivers, and altered water resource management practice have caused significant changes in the spatial distribution of the risk of flooding. Hedonic pricing studies, predominantly for the US, have assessed the spatial incidence of risk and the associated implicit price of flooding risk. Using these implicit price estimates and their associated standard errors, we perform a meta-analysis and find that houses located in the 100-year floodplain have a –0.3 to –0.8% lower price. The actual occurrence of a flooding event or increased stringency in disclosure rules causes ex ante prices to differ from ex post prices, but these effects are small. The marginal willingness to pay for reduced risk exposure has increased over time, and it is slightly lower for areas with a higher per capita income. We show that obfuscating amenity effects and risk exposure associated with proximity to water causes systematic bias in the implicit price of flooding risk.

Suggested Citation

  • Vanessa E. Daniel & Raymond J.G.M. Florax & Piet Rietveld, 2007. "Flooding Risk And Housing Values: An Economic Assessment Of Environmental Hazard," Working Papers 07-02, Purdue University, College of Agriculture, Department of Agricultural Economics.
    • Handle: RePEc:pae:wpaper:07-02
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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