Flood Risk and the U.S. Housing Market

Abstract

As recent hurricane seasons have made clear, flooding can cause a great deal of property damage and human suffering. Indeed, flooding causes the most damage of any natural disaster in the United States and worldwide and affects the greatest number of people. Yet today most households are uninsured, or underinsured, against flood losses and may incorrectly perceive that if they suffer property damage, government agencies and programs will significantly aid them financially soon after the disaster. In reality there is limited financial aid provided by the public sector to disaster victims and it is often delayed in the post-disaster period. This paper synthesizes existing research on the nature of flood risk and the housing market in the United States with a particular focus on the single-family market segment, a large category of the wealth on household balance sheets. We also consider flood risk externalities affecting the housing market more broadly.

Keywords: flood risk, housing market, insurance

JEL Classification: R