FLOODPLAINS AND HOUSING VALUES: IMPLICATIONS FOR FLOOD MITIGATION PROJECTS¹

Abstract

The hedonic valuation method was used to quantify the impact of floodplain location on housing values in Fargo‐Moor‐head. Being located in the 100‐year floodplain lowered the home values by $8,990, and such homes were worth $10,241 less than similar homes located outside the floodplain before the major flood event of 1997. Required flood insurance premiums for these homes were determined to account for approximately 81 percent of this price depreciation. In contrast, homes in the 500‐year floodplain were worth $3,100 more than similar homes not in the floodplain. It was concluded that more disclosure is needed regarding the location of the 500‐year floodplain, and that the hedonic valuation method can be used to calculate the economic gains and losses associated with flood mitigation projects or floodplain remapping efforts that result in the reclassification of the legal floodplain status of individual homes.

Attitudes to systemic risk: The impact of flood risk on the housing market in Dublin

“…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. The analysis presented in this paper shows that obfuscating amenity effects and risk exposure associated with proximity to water causes systematic bias in the implicit price of flood risk, in line with was found also by [7], [4] and [8]. It is reasonable to assume that locational amenities are more important to a person who wants to buy a house as oppose to a person who just wants to rent a house and so this could result in the over valuation of amenities during boom periods.…”

Do nearby forest fires cause a reduction in residential property values?

“…The utility from housing is a function of structural characteristics of the house (S1ySm), non-environmental characteristics of the general neighborhood such as school quality, demographic composition (N1yNn), location specific environmental amenities such as forests, wildlife habitat, etc. (Z1yZi), and as suggested by Murdoch et al (1993) and Shultz and Fridgen (2002), location specific risks such as fire, earthquakes or floods (R1yRr). Household utility is an increasing function of desirable structural characteristics (e.g., presence of a garage, fireplace) such that U s 40 and desirable environmental characteristics such that U z 40; alternatively, household utility is a decreasing function of perceived risk (Murdoch et al), that is U R o0.…”

“…If the housing market is competitive such that buyers' and sellers' decisions cannot affect the equilibrium price in the market area, then following Freeman (1993), and Shultz and Fridgen (2002), the hedonic price function takes the general form…”

“…Because the natural experiment involves evaluating house prices in an unburned town before and after a nearby forest fire, we use the hedonic price function to control for any changes in house characteristics and other exogenous trends during this time period. Similar to Murdoch et al's approach for earthquakes and Shultz and Fridgen (2002) approach for floods, the effect of a nearby forest fire is tested using a pre-post fire dummy variable. It is important to emphasize that our study town of Pine did not itself experience the fire, but rather it was near the town of Buffalo Creek that has similar vegetation and topography to our study town.…”

“…The natural hazards studied have included earthquakes (Brookshire et al, 1985;Murdoch et al, 1993) and floods (Damianos and Shabman, 1976;Shultz and Fridgen (2002)). Only one unpublished study has been found comparing property values before and after forest fires.…”