Real Estate and Flood Risk
Insurance Market Response to Flood Hazards: Empirical Evidence from the Housing Market
Carolin Pommeranz und Bertram I. Steininger, RWTH Aachen University
This study analyzes the impact of actuarial floodplain location on property prices and evaluates the risk perception of residential homeowners in Dresden, Germany. We combine hand-collected, insurance-based data for flood zone identification and property offering records in order to run a hedonic Spatial Durbin Model. Even for an entirely voluntary and private insurance market, we find that a property location at risk lowers the asking prices for houses and condominiums. Price differentials for houses exceed the present value of insurance premiums, while for condominiums, results vary around the present value according to specific flood zones.