The Role of Information in the Market Response to Flood Risk: Hurricane Katrina and the New Jersey Coast

Abstract

This study uses hedonic property models to explore how coastal real estate markets subject to heterogeneous information treatments respond to flood risk. We identify reactions to flood risk, distinctly from price effects due to flood damage, by examining non-local flooding events.  Utilizing a difference-in-differences methodology, we test whether the coastal real estate market in New Jersey responds to several well-publicized hurricanes that did not strike the Atlantic seaboard. We find that homes in high flood risk zones situated in towns that participate in public flood awareness activities incur a 7 to 16 percent decrease in price after the non-local shock. Further, we show that firms are more responsive to risk information than individuals and that markets exposed to such information are less adversely affected by future disasters.

Keywords: Climate change, real estate markets, information, flood risk, hedonic property models.