Flooding and Liquidity on the Bayou: The Capitalization of Flood Risk into House Value and Ease‐of‐Sale

Abstract

The existing literature focuses on how perceived flood risk affects house value. Search theory, however, implies that flood risks will be capitalized into both house price and liquidity. This article draws on search theory to develop an empirical approach for estimating flood risk capitalization into both price and selling time. The results show the mix of price and liquidity capitalization varies by level of flood risk as well as across housing market phases. Regardless of the specific capitalization pattern, the results illustrate that focusing solely on price without allowing for concomitant liquidity capitalization can yield estimates that understate the full impact of flood risk on house transactions.

Estimating the Effect of Crime Risk on Property Values and Time on Market: Evidence from Megan's Law in Virginia

“…Several papers, for example Stein (), Genosove and Mayer () and Krainer (), have modeled real estate market characteristics that lead to price rigidity and illiquidity. Additionally, a recent paper by Turnbull, Zahirovic‐Herbert and Mothorpe () develops a search model in which sellers choose reservation price subject to market price and liquidity constraints. These models imply that housing prices and liquidity are jointly determined.…”

“…Therefore, using L and C vectors uniquely identify the simultaneous system without having to resort to an ad hoc justification for the addition or subtraction of covariates. See Turnbull, Zahirovic‐Herbert and Mothorpe () for a more complete discussion of this technique.…”

On the Relation between Local Amenities and House Price Dynamics

“…Glaeser and Gyourko (2003), Glaeser, Gyourko and Saks (2005), Saiz (2010), Paciorek (2013) and Kok, Monkkonen and Quigley (2014) collectively find that land supply constraints amplify house prices and volatility by creating scarcity, decreasing responsiveness of investment to demand shocks, increasing the time to develop (lags in the permit process, increasing the number of 3 A separate extensive literature explores the relation between a specific amenity (or disamenity) and house prices at the property-level, which is not the focus of this study. Examples include investigations of the effects of school quality (Black 1999;Bogart and Cromwell 2000), proximity to the ocean and ocean view (Landry and Hindsley 2011;Wyman, Hutchinson and Tiwari 2014) and susceptibility to flood hazards (Turnbull, Zahirovic-Herbert and Mothorpe 2013). permit reviews, etc.)…”

“…A separate extensive literature explores the relation between a specific amenity (or disamenity) and house prices at the property‐level, which is not the focus of this study. Examples include investigations of the effects of school quality (Black ; Bogart and Cromwell ), proximity to the ocean and ocean view (Landry and Hindsley ; Wyman, Hutchinson and Tiwari ) and susceptibility to flood hazards (Turnbull, Zahirovic‐Herbert and Mothorpe ).…”

Do Areas Affected by Flood Disasters Attract Lower-Income and Less Creditworthy Homeowners?

“…First, we contribute to the literature that studies the housing market after natural disasters. With a few exceptions, which we discuss below, past studies have looked at the impact of one natural disaster on house prices (Harrison et al, 2001;Morgan, 2007;Bin & Landry, 2013;Turnbull et al, 2013;Zhang & Leonard, 2019). Boustan et al (2020) conduct a decade-wise study on the impact of natural disasters between 1930 to 2010.…”