Housing Market Response to New Flood Risk Information and the Impact on Poor Tenant

This study examines how house prices were affected by the great Iowa flood of 2008. Transaction data on Des Moines’ housing market from 2000 to 2012 are used to estimate a hedonic property price function for the region. Both difference-in-differences and triple differences techniques with boundary d...

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Bibliographic Details
Published in:The journal of real estate finance and economics 2020-06, Vol.61 (1), p.55-79
Main Authors: Yi, Donggyu, Choi, Hyundo
Format: Article
Language:English
Subjects:
Discounting
Economic impact
Economics
Economics and Finance
Financial Services
Flood control
Floodplains
Floods
Housing
Housing market
Housing prices
Income distribution
Neighborhoods
Original Research
Policy making
Prices
Property
Regional/Spatial Science
Rents
Risk perception
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Summary:This study examines how house prices were affected by the great Iowa flood of 2008. Transaction data on Des Moines’ housing market from 2000 to 2012 are used to estimate a hedonic property price function for the region. Both difference-in-differences and triple differences techniques with boundary dummies are used to isolate the impact of the 2008 flood. The main results are as follows. First, the price discount effect of pre-flood risk information is reconfirmed; however, it is overestimated when unobservable neighborhood effects are not controlled for. Second, unexpected inundation during the flood also leads to price discounting. Finally, we find a significant rebounding effect for post-flood prices in the 100-year floodplain areas not actually inundated, while there was no significant change in the 100-year floodplains actually inundated. These findings imply that the housing market updates the risk perception of properties when it receives new flood information. Meanwhile, this price change can affect the income distribution by increasing rents in areas in which the poor usually reside, offering policymakers some insights into how to formulate disaster-related policies.
ISSN:0895-5638
1573-045X
DOI:10.1007/s11146-019-09704-0