Flooding and Liquidity on the Bayou: The Capitalization of Flood Risk into House Value and Ease-of-Sale

Real Estate Economics, Forthcoming

Posted: 22 Feb 2012

See all articles by Geoffrey K. Turnbull

Geoffrey K. Turnbull

Georgia State University - Department of Economics

Velma Zahirovic-Herbert

University of Georgia

Chris Mothorpe

College of Charleston

Date Written: February 21, 2012

Abstract

The existing literature focuses on how perceived flood risk affects house value. Search theory, however, implies that flood risks will be capitalized into both house price and liquidity. This paper draws on search theory to develop an empirical approach for estimating flood risk capitalization into both price and selling time. The results show the mix of price and liquidity capitalization varies by level of flood risk as well as across housing market phases. Regardless of the specific capitalization pattern, the results illustrate that focusing solely on price without allowing for concomitant liquidity capitalization can yield estimates that understate the full impact of flood risk on house transactions.

Keywords: Flooding, flood risk, amenity, house value, liquidity

JEL Classification: Q51, R21, R31

Suggested Citation

Turnbull, Geoffrey K. and Zahirovic-Herbert, Velma and Mothorpe, Chris, Flooding and Liquidity on the Bayou: The Capitalization of Flood Risk into House Value and Ease-of-Sale (February 21, 2012). Real Estate Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2008930

Geoffrey K. Turnbull (Contact Author)

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States
404-651-0419 (Phone)
404-651-2737 (Fax)

Velma Zahirovic-Herbert

University of Georgia ( email )

Athens, GA 30602-6254
United States

Chris Mothorpe

College of Charleston ( email )

66 George Street
Charleston, SC 29424
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
622
PlumX Metrics