What is it about?
To what extent do individuals perceive and price flood risk in real estate transactions? We identify the effect of flood risk information by exploiting the different dates of release of regulatory flood risk maps in the suburbs around Paris during the period 2003-2012. This provides a unique setting to isolate the effect of flood risk information, as there had been no major flood in the region since 1955, nor was there any impact on the cost of flood risk insurance.
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Why is it important?
We use very detailed data on property transactions with their geocoded location, which allows us to precisely locate them inside or outside the flood risk zones that were implemented around Paris in the early 2000's. Using a stacked design we identify the effects of flood risk information in a context where there are no confounding effects of flood damage or changes in insurance premiums. We find substantial effects of such information, ranging from 3-7 %, and importantly, the effect persists at least over the time period we study.
Perspectives
We chose the Paris suburbs as our setting because a high proportion of the housing there is at risk of flooding and no major floods had occurred during the five decades prior to our study period (2003–2012). This setting was ideal for isolating the effect of flood risk information from the impact of actual flooding. A second advantage is France's universal natural disaster insurance, which enabled us to isolate the effect of flood risk information without the confounding influence of insurance cost implications, as in U.S. settings. Other specific features of our article is to study effects on both flats and individual houses, to test for heterogenous effects according to buyer characteristics, and to use very fine-grained data on amenities in the immediate vicinity of each transaction location. In terms of policy, our analysis reveals that real estate markets react to flood risk information. Future work could explore and compare the effects of flood risk information from flood map release policies with the information effects of actual flooding, and examine how these differ in terms of their impact on real estate markets and persistence.
Dr Katrin Millock
Paris School of Economics
Read the Original
This page is a summary of: FLOOD RISK INFORMATION RELEASE, Annals of Economics and Statistics, January 2024, JSTOR,
DOI: 10.2307/48804182.
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