Risk to Residential Property Values from Climate Change-Related Flooding Hazards: A Mixed Methods Approach

71 Pages Posted: 27 Dec 2019

See all articles by Quyen Nguyen

Quyen Nguyen

CEFGroup & Department of Accountancy and Finance, University of Otago

Ivan Diaz-Rainey

CEFGroup & Department of Accountancy and Finance, University of Otago

Tony Moore

School of Surveying, University of Otago

Paul Thorsnes

Department of Economics, University of Otago, New Zealand

Simon Cox

GNS Science, New Zealand

Leigh McKenzie

School of Geography, University of Otago

Leon Stirk-Wang

Department of Economics, University of Otago

Date Written: November 16, 2019

Abstract

Greater South Dunedin (GSD) has been identified as one of the most vulnerable areas to Climate Change-Related Flooding Hazards (CCRFH) in New Zealand, yet little is known about the magnitude of how CCRFH will impact property values. We address this issue by proposing a novel modelling strategy that links CCRFH, and in particular Sea Level Rise (SLR), to of residential property value, at fine geographical resolution. The strategy is both empirical and forward looking modelling. The empirical analysis reveals a significant negative price effect for houses associated with flooding risks in the local market (between 5.9% and 3.1%), which existed prior to the June 2015 South Dunedin flood and was exacerbated temporarily after this event. The forward modelling projections apply a “bathtub fill” approach to elevation data in a Geographical Information System (GIS) to identify the properties that will be inundated (using IPCC scenarios to 2100). Uncertainties arising from data error and long-term projection are modelled through Monte Carlo simulation. We find that, the risks of permanent inundation are currently limited and only become non-negligible in a “business-as-usual” pathway. The risks of periodic flooding, however, are strikingly large across all scenarios in the presence of extreme events. With high tides, the number of inundated properties may be as high as 39%. With extreme rainfalls, this number potentially increases to 41%. Taken together, CCFRH may affect property worth up to NZ$ 983 million in rateable value (37% of GSD property market). We conclude by acknowledging the limitations of our “bathtub fill” approach.

Keywords: Climate Change; Real Estate Valuation; Sea Level Rise; Flooding; Geographical Information Systems (GIS); Stranded Assets; Monte Carlo Simulation; Matching Estimators

JEL Classification: G17; Q51; Q54; R30; R32

Suggested Citation

Nguyen, Quyen and Diaz-Rainey, Ivan and Moore, Tony and Thorsnes, Paul and Cox, Simon and McKenzie, Leigh and Stirk-Wang, Leon, Risk to Residential Property Values from Climate Change-Related Flooding Hazards: A Mixed Methods Approach (November 16, 2019). Available at SSRN: https://ssrn.com/abstract=3489445 or http://dx.doi.org/10.2139/ssrn.3489445

Quyen Nguyen

CEFGroup & Department of Accountancy and Finance, University of Otago ( email )

P.O. Box 56
Dunedin, Otago 9010
New Zealand

Ivan Diaz-Rainey (Contact Author)

CEFGroup & Department of Accountancy and Finance, University of Otago ( email )

Dunedin
New Zealand

Tony Moore

School of Surveying, University of Otago ( email )

P.O. Box 56
Dunedin, Otago 9010
New Zealand

Paul Thorsnes

Department of Economics, University of Otago, New Zealand

Simon Cox

GNS Science, New Zealand ( email )

1 Fairway Drive
Avalon, 5010
New Zealand

Leigh McKenzie

School of Geography, University of Otago

P.O. Box 56
Dunedin, Otago 9010
New Zealand

Leon Stirk-Wang

Department of Economics, University of Otago ( email )

P.O. Box 56
Dunedin, Otago 9010
New Zealand

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