Higher property losses due to flooding events represent an increasing
challenge to the global insurance sector. This study aims at identifying the
impact of flood hazard location on property prices and evaluates the flood
risk perception of potential homeowners. We utilize insurance-based
geographical information system (GIS) data for flood zone identification and
residential property offering records from Dresden, Germany to run a
spatial Durbin model. Results indicate that homeowners are almost
informed about costs for sufficient flood insurance coverage and premiums
are capitalized into the residential property market since location within a
flood risk area lowers offering prices for houses by 26%. However, for
condominiums within a flood-prone area the price discount is only 3%.
Furthermore, price discounts exceed capitalized insurance premiums due to
non-monetary losses that cannot be covered by insurance.
Pommeranz, Carolin, and Bertram I. Steininger. "Insurance Market Response to Flood Hazards: Empirical Evidence from the Housing Market." In 23rd Annual European Real Estate Society Conference. ERES: Conference. Regensburg, Germany, 2016.
Section: Urban Economics & Planning