Proximity To A Flood Zone Lowers Property Values

By law, a property is considered in a “flood zone” if any part of the structure falls within a floodplain, an area that is adjacent to a stream or river that experiences periodic flooding. It has been acknowledged that the level of risk associated with a property may be associated with natural hazards.

Researchers examined flood hazards in the coastal housing market of Carteret County, North Carolina. Carteret County has substantial access to water including the Atlantic Ocean, the Pamlico Sound, waterways, lagoons, rivers, streams, creeks, and wetlands.

Utilizing Geographic Information System data on National Flood Insurance Program flood zones and residential property sales in Carteret County from 2000 to 2004, researchers examined the effects of flood hazards on coastal property values.

The findings indicate that the price of a residential property located within a floodplain is significantly lower than an otherwise similar house located outside the flood zone. On average, location within a floodplain lowers estimated sales value $11, 600, representing a 7.3 percent reduction of the average house sales price.

At a time when the size of the population living along US coastlines is expanding at more than double the national rate of population growth, the information presented in this study should be regarded as a call to action. “With over half of the U.S. population now residing in coastal counties, the need for public policy analysis of hazards that affect these locations is compelling and urgent,” the authors conclude.

This study is published in the March 2008 issue of the Journal of Risk & Insurance.