Journal article
Potential Benefits in Remapping the Special Flood Hazard Area: Evidence from the U.S. Housing Market
Journal of housing economics, Vol.61, p.101956
09/01/2023
DOI: 10.1016/j.jhe.2023.101956
Abstract
•Nationwide spatially restricted triple difference identification approach•Heterogeneity in the implicit flood risk price has important implications•Previous studies may overestimate property overvaluation of flood risk•FEMA's Risk Rating 2.0’s impact on housing markets can be strengthened•Expanded flood disclosure laws can reduce socialized costs of flooding
A typical U.S. homebuyer's understanding of whether a property faces flood risk is based on whether the property is located inside the National Flood Insurance Program's (NFIP) Special Flood Hazard Area (SFHA). The SFHA boundary, however, may bias homebuyers’ perceptions of flood risk relative to unobserved true risk because the SFHA is an incomplete, and sometimes inaccurate, representation of flood hazards. Using a national dataset of property transactions, flood hazard data from the First Street Foundation, state-level measures of flood disclosure laws, and a spatially restricted triple-difference design, we distinguish capitalization effects of policy-driven (SFHA) versus quasi-objective (First Street) indicators of flood hazard. We identify these effects by assessing thousands of local spatial interactions between property SFHA designations, measures of quasi-objective flood hazard, and being in a state that mandates flood history disclosures. Being inside the SFHA generates a risk discount, but the signal is muted relative to underlying hazard exposure. Further, the SFHA signal can result in inefficient discounts for properties erroneously mapped in the SFHA. Disclosure requirements about flood history accentuate price effects for hazardous properties and result in more adequate risk internalization. In the absence of disclosures, however, we find either no or a weak risk signal for houses outside the SFHA that face flood hazard. Our results support calls for FEMA to update SFHA boundaries to include all houses that may experience flooding. Further, our results support policy reforms considered by FEMA to require flood-related disclosures from sellers to improve the market's ability to internalize flood risk.
Details
- Title: Subtitle
- Potential Benefits in Remapping the Special Flood Hazard Area: Evidence from the U.S. Housing Market
- Creators
- Adam B Pollack - Boston UniversityDouglas H Wrenn - Pennsylvania State UniversityChristoph Nolte - Boston UniversityIan Sue Wing - Boston University
- Resource Type
- Journal article
- Publication Details
- Journal of housing economics, Vol.61, p.101956
- DOI
- 10.1016/j.jhe.2023.101956
- ISSN
- 1051-1377
- eISSN
- 1096-0791
- Publisher
- Elsevier Inc
- Language
- English
- Date published
- 09/01/2023
- Academic Unit
- School of Earth, Environment, and Sustainability
- Record Identifier
- 9985112880602771
Metrics
2 Record Views