The Impact of Flood Zones on Residential Property Prices: The Case of Canada

Abstract

We investigate the impact of flood risk on the Canadian housing market. We combine a variety of large heterogeneous sets of data, both structured and unstructured, that allows taking into account key drivers of properties value that are otherwise difficult to control for. We infer the findings from two distinct samples composed of properties for sale and properties sold. The results suggest that high-risk location commands an average price discount of 4% even though overland flood insurance protections are mostly nonexistent in Canada. Such a discount is both economically and statistically significant and robust to the use of alternative modeling strategies. Interestingly, the discount is larger for the sold than the for sale sample, which indicates that homebuyers are aware of high-risk flood areas.

Keywords

• housing
• flood
• gis
• risk awareness
• hedonic price model