Flooding and real estate value; What’s the relation?

Flooding and real estate value; What’s the relation?

Climate risks are getting closer and closer, as the recent floods in England and Germany once again illustrate. For homes, those risks are very relevant, not only in climate shocks such as hurricanes or overflowing rivers, but also in light of slower changes such as sea level rise.

In our recent study, focused on Dordrecht in the Netherlands, we discuss how flood risk information impacts homebuying behavior. The study reveals that real-life flood experiences have a more significant impact on property values and buying behavior than just informational warnings alone. It highlights that properties in flood-prone areas, particularly near water, generally sell at higher prices due to their attractive locations. However, after experiencing a flood themselves, homeowners in these areas tend to incorporate flood risk in the sales price. We also find that homeowners shift from purchasing to renting properties after receiving more information.

Unilateral provision of information to sellers will only lead to value distortions if the buyers systematically have less information than the sellers. Providing more accurate and understandable flood risk information can help market participants make better housing decisions. This advocates a nationwide, uniform provision of information regarding climate risk.

For the full article (in Dutch), please see Gebiedsontwikkeling.nl

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