Water Resources Research Act Program

Details for Project ID 2011GA275B

Flood Risk and Homeowners' Flood Risk Perceptions: Evidence from Property Prices in Georgia

Institute: Georgia
Year Established: 2011 Start Date: 2011-03-01 End Date: 2012-02-29
Total Federal Funds: $20,000 Total Non-Federal Funds: $40,000

Principal Investigators: Susana Ferreira, Susana Ferreira

Abstract: The problem The southeastern coastal region in the US is highly susceptible to hydrological disasters. In recent years, it has been hit by numerous hurricanes and tropical storms that have caused substantial monetary and non-monetary damages. For example, in the State of Georgia, Hurricane Frances in 2004 resulted in a loss of 30 percent of the crops, and a death toll of 8. Storm and flood damages have increased dramatically over time and this trend is expected to continue. This is due, first, to an increase in the frequency and intensity of extreme weather events associated with climate change. A second reason, of special interest to this research, is the concentration of capital and people into flood plains and other high-risk areas, driving up the costs when a flood occurs. This raises important questions: Do homeowners have accurate information about flood risks? Do they understand this information? How does this information translate into their perceived flood risk as reflected into property prices? Research Questions We aim to expand the understanding of homeowner's perceptions regarding risks associated with living/buying on the coast, and more generally, on flood-hazard prone areas. We focus on three counties in Georgia: Chatham and Glynn (both coastal), and Fulton (inland but flood-prone). Specific research questions include the following: 1) Do homeowners in Georgia perceive the flood risk as designated in FEMA's hazard maps (known as Flood Insurance Rate Maps, or FIRMs) or other indicators of flood risk? 2) What are the price differentials between properties inside and outside the floodplain as defined by the FIRMs? How do these compare with flood insurance premiums? 3) Do information updates (caused by external events -e.g. a flood - or new risk designations -e.g. modernization of flood maps) affect homeowner's risk perceptions? 4) If property prices do change after a shock (say a flood event), which type of properties and locations are more susceptible to price drops? Methods We will estimate hedonic pricing models to determine whether/how flood risks are capitalized into property prices. Hedonic property models are widely used in Economics. The price of a property is modeled as a function of structural characteristics (e.g. number of rooms or size of the house), neighborhood characteristics (e.g. school district), location characteristics (e.g. distance to parks), and an environmental variable of interest, in this case flood risk. The analysis requires the construction of a unique dataset that matches property prices with key property characteristics including location characteristics relevant to assess flood risks. Geographic Information Systems (GIS) will be used for the merging of data from different sources (e.g. Tax Assessor's Offices, Counties' GIS information portals, FEMA's hazard maps being updated by the Georgia Department of Natural Resources) and to create new variables (such as variables measuring distances, buffer zones, or elevations).