Sea Level Rise and House Price Capitalisation
22 Pages Posted: 23 Apr 2019
Date Written: March 10, 2019
Economic theory and extant research suggest that flood prone properties should attract a discount. This concept can be extended to properties affected by future sea level rise but there is limited information for purchasers to judge and make informed decisions about their investment. Using a comprehensive dataset comprising statutory rating valuation information and sales transactions for the period 2011 – 2016, a hedonic framework is applied in order to ascertain the implications of the existing flood discount and potential price effects of future sea level rise. The hedonic model identifies a price discount effect for properties affected by known flooded areas, whilst sea level rise has no notable effect on valuations or sales data. The results highlight that purchasers do not appear to price sea level rise risk and are under-prepared for the future challenges and implications sea level rise and the ancillary effects of future flooding, inundation and storm surge.
Keywords: sea level rise, house prices, flood risk, hedonic pricing, information asymmetry
JEL Classification: Q54, R21, R31
Suggested Citation: Suggested Citation