By Orell Anderson, MAI, FRICS, ASA and David Kader
Real estate research provides evidence that properties potentially exposed to perceived or actual risks may experience price impacts. Looking Under the Hood reviews publications that illustrate the theoretical, methodological, and data challenges faced by scholars and practitioners studying detrimental conditions and their impacts on property values.
A study conducted by Okmyung Bin and Jamie Brown Kruse gives insight to the question posed in the header title above. Their hedonic study looks at how flood risks affect house prices in Carteret County, North Carolina, a coastal area with flood-prone regions. Their research focuses specifically on coastal flood hazards between various flood zones. The authors cited other studies that found that flood risk lowers property values inland by 3% to 12%, the high premiums paid for coastal properties make flood insurance premiums less influential in overall market pricing. Using flood maps and property sales data from 2000 to 2004, Bin and Kruse found that when a property is located within a flood zone that is not subject to coastal wave action the property values are 5% to 10% lower. Properties in flood zones that face wave action have higher values due to their proximity to the water.
Over the last 20 years, coastal property values have steadily increased, however, future threats like sea level rise and coastal erosion could change the result of these findings. The study’s analytics indicate that stricter building regulations and changes in insurance policies may be needed in high-risk coastal areas, while inland properties might not require the same level of regulatory intervention.
Bin, Okmyung and Kruse, Jamie Brown “Real Estate Market Response to Coastal Flood Hazards” Natural Hazards Review, Vol. 7, No. 4, (2006).