What We Know About Flooding and Housing Prices November 1, 2018 What We Know About Flooding and Housing Prices Dr. Chip Filer, Associate Vice President for Entrepreneurship and Economic Development and Senior Fellow, Commonwealth Center for Recurrent Flood Resiliency

What We Know Previous work suggests that housing prices are starting to respond to flood risk. Prices don’t always decline. There is often a J-curve effect where prices initially decline but then increase.

What We Don’t Know Why are prices declining? Could be a decrease in demand for the property Could be a decrease in price to compensate for higher flood insurance premiums Are prices responding to long-term climate change risk? Are price effects permanent or transitory?

A Theory of House Prices in Flood Prone Areas (from Gwilym Price, et A Theory of House Prices in Flood Prone Areas (from Gwilym Price, et. al. 2011)

Studies With Floyd, Fran, Katrina and Sandy Data Post-Sandy A team of researchers from Rutgers, Connecticut and London examined sales data in and around New York City after Sandy. Residential properties in the flood zone lost about 12.7% of their value Properties on higher elevation (within the flood zone) retained much of their value Each one-foot increase in surge level led to a 3%-3.7% decrease in value. Post-Floyd and Fran A 2013 study found a price discount of 5%-9%. The price effect vanished over time (evidence of amnesia) Post-Katrina Some studies find a decrease in price while others find an eventual increase

Our Study on Hampton Roads Data We used transactions data Post-Nor’Ida (2009) and Post-Irene (2011) and looked at both price and time-on-market We found a price decrease of 5% Interestingly, we found a larger price decrease (7%) for houses that were in lower-risk areas. Houses in high-risk areas stay on the market 5-8 days longer Finally, we found persistence in price declines for 5 years

Take-Aways House prices decline post-event, but it is unclear if they are declining because of sea-level rise risk. Price declines have been transitory as long as events are infrequent. This suggests that buyers have amnesia This effect still exists even with stronger requirements for information sharing If the destruction of the housing stock is large enough then prices could actually rise. This was the case post-Katrina and could also be the case for Florida post-Michael.

Policy Changes Going Forward Federal Funding for NFIP? NFIP was reauthorized for only 4 months back in July. NFIP program expires on November 30th. It was reauthorized on the condition that it be reviewed and reformed Zoning changes for new construction in the floodplain Norfolk has instituted minimum elevation requirements for new construction Several areas along the SE coast have instituted special zones for flood prone areas that require specific construction methods Expect these types of conditions to increase in use More frequent flood map updating

Thank you Dr. Chip Filer, Associate Vice President for Entrepreneurship and Economic Development and Senior Fellow, Commonwealth Center for Recurrent Flood Resiliency