Flood risk and housing prices

Békés, Gábor and Horváth, Áron and Sápi, Zoltán (2016) Flood risk and housing prices. Műhelytanulmányok = Discussion Papers (MT-DP ). Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, Budapest. ISBN 978-615-5594-56-4

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Abstract

This study employs the hedonic property price method to analyze the flood risk effect on a rich set of data. The analysis is carried out on Hungary, but as the control variables are extremely elaborated, our results have general importance. The paper finds a significant reduction in housing prices accounted to ZIP code level flood risk even after controlling for a wide range of geographical and socio - economic fea tures. This paper finds that flood risk reduces housing prices substantially. It turns out that the average elasticity is driven by being in close proximity of major rivers. While riverside areas have an overall price premium in Hungary, risky areas loose this advantage to flood risk. I n ZIP code areas where the inundation depths are 10% higher, housing prices tend to be 1% lower on average plus another 1% lower along the major rivers.

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