Flood-Hazard Effects on Residential Property Values

Inasmuch as the potential for flooding can reduce property values, individuals will be encouraged to promote government policies that reduce the damages of flooding, such as dams or subsidized flood insurance. On the other hand, policies that limit the use of flood-prone land may reduce the value of such land even beyond the reduction due to flooding potential. Thus, political choice may be biased toward structural or property enhancing measures as opposed to measures which reduce property values regardless of what the socially best set of measures might be. To empirically investigate the validity of the preceding arguments, the influence of flood hazard on residential property values was estimated. In order to accomplish this task, two case study areas were examined. Using multiple regression analysis to analyze actual sale prices of land parcels indicated that: (1) The existence of flood risk lowers land value; (2) structural flood-control measures increase land prices; and (3) the influence of flood-plain zoning can not be easily identified.