The Impact of Water front Location on Residential Home Values Considering Flood Risks

Abstract

We confirm existing findings of significant premiums for waterfront proximity, more so for oceans, bays, and large lakes than rivers. We then expand research on housing price trends immediately before and after major storms in directly affected markets. Our findings support a consensus view that single-family home prices rebound quickly to prior macro trends after major storms, with little persistent negative impact on value. In addition, using elevation as a proxy for flood risks associated with sea level rise, we find inconsistent evidence that the market perceives flood risk and discounts property prices accordingly. The absence of a permanent market reaction may change as the market is exposed to increases in insurance premiums or other direct pricing of the risks. Our results suggest either a short-term horizon for buyers of coastal properties at risk, or a moral hazard problem whereby residential owners are dependent upon and subsidized by government and mispriced flood risk insurance premiums.

Keywords

• climate change
• sea level rise
• flood risks
• housing prices