May 2019: With renewed interest in this subject we’ve written an updated post – it can be found here.
Original 2014 Post
Over the course of the last year I’ve been constantly surprised by personal and institutional value systems and risk perception. People worry about the present and are less concerned with the future; which makes it hard to make plans that will benefit your grandchildren but that might cost in the short-term. One issue that has arisen in project after project is the worry that acknowledging a flood hazard or risk puts you in worse position than burying your head in the sand. And, one of the things that worries people the most is that the acknowledgement of a flood hazard will affect real estate values.
So, with this in mind, I set Ebbwater’s researcher the task of digging into the literature to see what she could find. It turns out we should probably stop worrying. Acknowledging the hazard, by preparing a flood map for example, may decrease the real estate value marginally. But surely, this is far outweighed by the value that the map brings by creating a tool for smart flood management decisions. This in turn can bring flood mitigation (i.e. reduced damages and losses in future). In fact, it may save the property in future – which means that it won’t lose a large portion of its value when the flood actually hits.
If you are a details person, the following outlines the literature. There are unfortunately few studies that look at the effect a floodplain map (i.e. an acknowledged hazard) disclosure. More commonly, real estate value is looked at in light of an actual flood. Nonetheless, here’s a summary of the findings:
- Results of studies comparing the effects of floods and flood hazard disclosures on property values are contradictory, ranging from negative to positive effects on property values, with the magnitude of the effect, the spatial extent and duration of any effects also varying significantly (Yeo 2003). This is due to different study approaches, data and methods of analysis (e.g. changes to developed residential property values, vs. land values), quality of the studies (sample size, duration of observation ranging from 1 year to > 20 years), many other factors influencing property value (such as lot and building size, property location including waterfront and proximity to amenities, and general market trends), site-specific characteristics (e.g, previous flood experience in the area versus no direct exposure to previous floods and thus, often less concerns) and the nature of the flood hazard disclosure (timing of disclosure, media coverage, even wording and content of the disclosure). It is also important to consider the legislative difference between different countries, and regional differences in behaviors and attitudes (Troy 2003, Yeo 2003).
- In an analysis comparing the effect of the California Hazard Disclosure Law (AB 1195) on property values across California, it was shown that the average flood plain property sold for 4.3% less than a comparable property not located in a designated floodplain (Troy 2003).
- On the other hand, it was also shown that flood risk is just one of many characteristics affecting property values, and some studies in Canada and New Zealand found no distinction in property values between floodplains and non-floodplains (Yeo 2003). For instance, flood hazard mapping did not have any effects on property values in New Zealand (Montz 1993), or in Oregon (Muckleston 1983). Indeed, it was shown for the case study in Oregon that mean appreciation rates for regulated river front lots increased significantly more rapidly than those for unregulated lots (Muckleston 1983, Yeo 2003).
- It is generally recognized that an actual flood event, rather than a flood hazard disclosure on a floodplain map, has a greater effect on property values (Yeo 2003). For instance, in Oregon, several flood events contributed to significant decreases in property value (19% – 26% for flood affected houses), whereas the introduction of a floodplain regulation enforcement did not show effects on residential land value (Mucklestone 1983).
- Actual flood occurrence shows, however, in almost all cases negative impacts on the property value. It depends on the degree of flooding and ranges from an average of -15% up to -60% for severe property damage. Often, nearby property that is not affected by the flood, also sees decreases in property value. In some cases, the improvements and renovations made after a flood occurrence have increased property value. Recovery time to pre-flood value (or non-significant difference between flooded and non-flooded property) also depended on severity of flooding event, as well as a number of external factors, and ranges from 6 months to more than 10 years for severe floods, with most studies showing about ~ 3 to 4 years recovery time (Yeo 2003; Troy 2003; Eves and Wilkinson, 2014; Tobin & Montz 1994). Impact on property value increased with re-occurrence of flood (Tobin & Montz 1994).
- Calgary Flood example: In April 2014 (1 year after the flood), the housing market still has to recover: Some of the affected houses had price drops from 10% to 25% (Globe and Mail, 2014). The 2014 property assessment saw a reduction in assessed value due to the flood for 1,939 of 450,314 residential properties in Calgary, with an average loss of $208,870 in assessed value for each home damaged (Calgary 2014).
References
Calgary (2014): http://www.calgary.ca/PDA/Assessment/Pages/2013-Flood-Q-and-A–property-assessment.aspx
Eves, C., & Wilkinson, S. (2013). Assessing the immediate and short-term impact of flooding on residential property participant behaviour. Natural Hazards, 71(3), 1519–1536. doi:10.1007/s11069-013-0961-y
Globe and Mail (2014): http://www.theglobeandmail.com/report-on-business/economy/housing/after-the-flood-the-deluge/article18293150/
Montz, B. E. (1993). Hazard area disclosure in New Zealand: the impacts on residential property values in two communities. Applied Geography, 13(3), 225–242. doi:10.1016/0143-6228(93)90002-I
Muckleston, K.W. (1983). ‘The impact of floodplain regulations on residential land values in Oregon’, Water Resources Bulletin, 19(1), 1–7.
Tobin, G.A. & Montz, B.E. (1994). ‘The flood hazard and dynamics of the urban residential land market’, Water Resources Bulletin, 30(4), 673–685.
Troy, A., & Romm, J. (2003). Assessing the Price Effects of Flood Hazard Disclosure Under the California Natural Hazard Disclosure Law (AB 1195). Journal of Environmental Planning and Management, (Ab 1195), 1–35.
Yeo, S. (2003). Effects of disclosure of flood-liability on residential property values. Australian Journal of Emergency Management, 18(1), 35–44.