HEDONIC PRICE ANALYSIS OF THE EFFECT OF A FLOODPLAIN ON PROPERTY VALUES¹

Abstract

The effect of a floodplain location on the market value for property is controversial, with the conventional wisdom being that buyers are myopic. Previous parametric and nonparametric statistical tests have proven inconclusive in deciding the issue. Herein, a theoretical model, that of hedonic price indexes, is posited and tested, using housing sales characteristics data obtained from a Multi‐List Service cooperative. This study suggests that home buyers do adjust the purchase price for houses within a floodplain, and this amounts to, on average, just over 12 percent. The data are from a small midwestern town in which the last severe flooding occurred a decade ago.

Housing Shadow Prices in an Inundation-prone Suburb

“…This finding is consistent with international studies (Bartosova et al, 1999;Bin and Kruse, 2006;Donnelly, 1989;Guofang et al, 2003;Speyrer and Ragas, 1991;Thompson and Stoevener, 1983). Furthermore, for our case study we show that for every vertical metre a property is below the 100-year ARI mark, additional discounting applies.…”

The Impact of Special Flood Hazard Area Designation on Residential Property Values

“…The mean price of a home in their sample was US$100,000. It is also worth noting that Donnelly (1989) finds that in LaCrosse, Wisconsin, location within a floodplain reduced residential prices by an average of about US$6,000, with the average property in the region standing at about US$50,000.…”

Assessing the Impact of Urban Improvement on Housing Values: A Hedonic Pricing and Multi-Attribute Analysis Model for the Historic Centre of Venice

“…Regarding the use of HPM for the assessment of the impact of flood risk and coastal hazards on housing values, an evolution of the focus put in the analyses can be noted that initially took into account only the localization in floodplains and subsequently, started analyzing also interactions between flood risk and environmental amenities (e.g., views on rivers and coastlines) often using spatial hedonic models. Donnelly [37] in 1989 observed that previous studies showed a controversial effect of a floodplain location on the real estate market value because of buyers being "myopic" [37]. Using housing sales from a small Midwestern town in which severe flooding had occurred one decade before his analysis, he demonstrated that homebuyers did adjust the purchase price for houses within a floodplain by an amount of, on average, over 12%.…”