Housing Market Response to New Flood Risk Information and the Impact on Poor Tenant

This study examines how house prices were affected by the great Iowa flood of 2008. Transaction data on Des Moines’ housing market from 2000 to 2012 are used to estimate a hedonic property price function for the region. Both difference-in-differences and triple differences techniques with boundary dummies are used to isolate the impact of the 2008 flood. The main results are as follows. First, the price discount effect of pre-flood risk information is reconfirmed; however, it is overestimated when unobservable neighborhood effects are not controlled for. Second, unexpected inundation during the flood also leads to price discounting. Finally, we find a significant rebounding effect for post-flood prices in the 100-year floodplain areas not actually inundated, while there was no significant change in the 100-year floodplains actually inundated. These findings imply that the housing market updates the risk perception of properties when it receives new flood information. Meanwhile, this price change can affect the income distribution by increasing rents in areas in which the poor usually reside, offering policymakers some insights into how to formulate disaster-related policies.