Flood Hazard Pricing and Insurance Premium Differentials: Evidence from the Housing Market

MacDonald, Don N.; White, Harry; Taube, Paul M.; Huth, William L.

doi:10.2307/252950

Cited by 65 publications

(40 citation statements)

References 12 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…These papers generally find a price reduction for property in the floodplain that is often larger than the present value of annual insurance premium payments (Schilling, Benjamin, and Sirmans 1985;MacDonald, Murdoch, and White 1987;Shilling, Sirmans, and Benjamin 1989;Holway and Burby 1990;MacDonald et al 1990;Speyrer and Raga 1991;Harrison, Smersh, and Schwartz 2001;Bin and Polansky 2004;Bin and Kruse 2006;Bin, Kruse, and Landry 2008). Only three studies, however, investigate how a major flood event alters the price differential between property prices inside and outside of floodplains and, by extrapolation, how a disaster alters a homeowner's assessment of risk.…”

Section: Homeowners and Risk: Previous Researchmentioning

confidence: 99%

Learning from Extreme Events: Risk Perceptions after the Flood

Kousky¹

2010

Land Economics

209

136

View full text Add to dashboard Cite

Section: Homeowners and Risk: Previous Researchmentioning

confidence: 99%

Learning from Extreme Events: Risk Perceptions after the Flood

Kousky¹

2010

Land Economics

209

136

View full text Add to dashboard Cite

“…Among others, Bin and Polasky (2004) and Hallstrom and Smith (2005) investigate the effect of specific hurricane events -Floyd and Andrew -on individuals' perception of flood risks. Shilling, Benjamin and Sirmans (1987), MacDonald, Murdoch, andWhite (1987), MacDonald, White, Taube, andHuth (1990) and Bin, Kruse, and Landry (2008) have also evaluated the effect of flood hazard on housing values. 6 nation-wide longitudinal data that covers areas with near-miss incidents of massive earthquakes, i.e.…”

Section: Previous Studiesmentioning

confidence: 99%

Earthquake risk and housing prices in Japan: Evidence before and after massive earthquakes

Naoi

Seko

Sumita

2009

Regional Science and Urban Economics

112

View full text Add to dashboard Cite

The hedonic pricing approach is used to examine whether homeowners and/or renters alter their subjective assessments of earthquake risks after massive earthquakes. Using nation-wide household panel data coupled with earthquake hazard information and records of observed earthquakes, we find that there are some modifications of individuals' assessments of earthquake risk in both cases. We have carefully taken into consideration the bias stemming from the use of objective risk variables as a proxy for individual risk assessments. Our results suggest that the price discount from locating within a quake-prone area is significantly larger soon after earthquake events than beforehand. We argue that the most likely interpretation for this result is that households tend to underestimate earthquake risk if there has not been a recent occurrence. AbstractThe hedonic pricing approach is used to examine whether homeowners and/or renters alter their subjective assessments of earthquake risks after massive earthquakes. Using nation-wide household panel data coupled with earthquake hazard information and records of observed earthquakes, we find that there are some modifications of individuals' assessments of earthquake risk in both cases. We have carefully taken into consideration the bias stemming from the use of objective risk variables as a proxy for individual risk assessments. Our results suggest that the price discount from locating within a quake-prone area is significantly larger soon after earthquake events than beforehand. We argue that the most likely interpretation for this result is that households tend to underestimate earthquake risk if there has not been a recent occurrence.JEL classification: R20, C23.

show abstract

“…There is ample empirical evidence that single-family houses in high-risk flood zones sell for significantly less than similar houses not so situated. A number of researchers have concluded that the price discount associated with floodplain properties was greater than the present value of annual flood insurance premiums (MacDonald et al, 1990;Speyrer and Ragas, 1991;Harrison et al, 2001;Bin and Polasky, 2004;Bin et al, 2008). Discounts that exceed the capitalized value of future flood insurance premiums suggest that non-insurable costs associated with flooding existed in the study markets.…”

Section: Introductionmentioning

confidence: 97%

The Impact of a Letter of Map Amendment on Floodplain Property Value

Larsen

2012

American Journal of Economics and Business Administration

View full text Add to dashboard Cite

Substantial empirical evidence indicates properties across the United States that are located within a Special Flood Hazard Area (SFHA) sell at a discount compared to similar properties otherwise located. This result is also true in our sample. Researchers have suggested the price discount equals a combination of the present value of the required flood insurance premiums and the value of uninsurable costs. To identify the portion of the discount applicable to each component, analysts have been required to estimate applicable insurance premiums and to assume a discount rate. The present paper presents a methodology that does not require these prerequisites, but still enables separation of the discount into the two components. in the united states, the federal emergency management agency sometimes issues a Letter of Map Amendment (LOMA), which exempts a property from the requirement that it be insured against flood damage as a prerequisite to the owner obtaining a federally-related mortgage loan. Therefore, any price difference between non-LOMA SFHA properties and similar properties outside the SFHA should continue to equal the sum of the two components and any significant price difference between SFHA properties with a LOMA and similar properties located outside the SFHA should equal the present value of the uninsurable costs only. Hedonic regression is used to test this proposal by comparing the selling prices of single-family house transactions for properties located within and outside the SFHA in Kettering, Ohio. In our sample, no significant uninsurable costs were detected.

show abstract

Flood Hazard Pricing and Insurance Premium Differentials: Evidence from the Housing Market

Cited by 65 publications

References 12 publications

Learning from Extreme Events: Risk Perceptions after the Flood

Learning from Extreme Events: Risk Perceptions after the Flood

Earthquake risk and housing prices in Japan: Evidence before and after massive earthquakes

The Impact of a Letter of Map Amendment on Floodplain Property Value

Contact Info

Product

Resources

About