Estimating Effects of Wind Loss Mitigation on Home Value

Abstract

We employ a novel spatial regression model to estimate effects of windstorm loss mitigation features on the value of coastal homes. Specifically, we consider joint effects of the Insurance Institute for Business and Home Safety’s (IBHS) FORTIFIED HOME^TM . designation (henceforth Fortified) and distance from the coast on the prices paid for houses. We find that on average homebuyers pay a seven-percent premium for Fortified homes, which exceeds the typical cost of building or retrofitting homes to the Fortified standard. In addition, we find that Fortified construction and distance from the coast are substitutes. The premium is highest for homes nearest the coast.

Keywords: Windstorm Risk, Self-Insurance, Hedonic Prices, Spatial Regression

JEL Classification: D12, G22, R21, R28, R31