![]() ![]() Policymakers can help by passing legislation that promotes access to information about the extent of past flood events and strengthens real estate disclosure requirements, according to the researchers. This past year was the tenth in a row with eight or more billion-dollar disasters in the U.S. The urgency of informing homebuyers about hazards from floods and other climate change-driven hazards will only grow. ![]() More sophisticated commercial buyers, such as corporations that rent out single-family homes, discount flood zone properties by about 5 percentage points more than other buyers. This awareness is likely informed by a combination of disclosure laws and the extent of flood risk within the community measured by the percentage of homes located in floodplains. Perhaps unsurprisingly, the results suggest that a buyer’s flood risk awareness shapes the value they perceive in a property. “But here we find clear evidence, in an incredibly valuable market, that the market is underpricing flood risk.” “We like to think that markets work efficiently and incorporate all known information about risk,” said Burke. In contrast, had buyers factored in the cost of fully insuring the floodplain home against damage, it should have pushed prices down 4.7 percent to 10.6 percent – as much as $53,000 for a $500,000 home or $106,000 for a $1 million home, according to the researchers. The analysis revealed that single-family homes zoned into a floodplain lose roughly 2 percent of their value, which works out to $10,500 for a $500,000 home or $21,000 for a $1 million home. To better understand the drivers of flood zone discount, the researchers examined what happened to property values when floodplain maps were updated, causing some houses to be rezoned from outside to inside the floodplain. Hino and study senior author Marshall Burke, an associate professor of Earth system science at Stanford Earth, pored over historical and current floodplain maps as well as detailed real estate transaction data to estimate the effect of regulatory floodplain maps on property values or what the researchers call the flood zone discount. Unlike many past studies, which focused on single counties or cities in only a few states, the new analysis casts a nationwide net to paint a clearer picture of whether markets effectively account for publicly available information about flood risk. Most states only require disclosures by the time the contract is signed, making them unlikely to inform buyers’ decisions. Only two states require that sellers disclose the cost of their insurance policy – an additional cost burden for the buyer. While some states, such as Louisiana, require detailed flood risk disclosures, others require no risk disclosures of any kind. homes are projected to rise more than 60 percent, from $20 billion to nearly $32.2 billion a year, according to nonprofit research group First Street Foundation. In the next 30 years, flood damages to U.S. More frequent extreme weather could magnify the trend. Since 2000, overall flood damages have quadrupled in the U.S. ![]() As more people have built more homes in areas exposed to cyclones, sea-level rise and other inundation hazards, flooding damage costs have skyrocketed. In some states, such as Florida, as many as one in six homes are in floodplains. “Improving how we communicate about flooding is an important step in the right direction.” Water hazard “The overvaluation we find is really concerning, especially given the increases in climate risk that are coming our way,” said study lead author Miyuki Hino, who was a PhD student in the Emmett Interdisciplinary Program in Environment and Resources in Stanford’s School of Earth, Energy & Environmental Sciences (Stanford Earth) at the time of the research and is now an assistant professor in the University of North Carolina at Chapel Hill’s department of city and regional planning. They find that floodplain homes are overvalued, particularly in situations where buyers are less informed on flood risk. housing markets respond efficiently to information about flood risk. In a new study, Stanford researchers explored whether U.S. As the climate changes, more frequent and intense flooding is a threat that many Americans face.
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