Understanding whether markets efficiently price environmental risk is critical to policy design, particularly as key climate risks change rapidly.
We conduct a nationwide analysis of the extent to which the US housing market prices information about flood risk contained in publicly available flood maps.
Using data on millions of home sales, we find that information in these maps is not fully capitalized in property values.
Lack of information appears to contribute to underpricing: More sophisticated commercial buyers and more risk-aware buyers respond more to floodplain information.
Enhanced communication of flood risk could help ensure such risk is appropriately reflected in market outcomes.
Here we measure the effect of information about flood risk contained in regulatory floodplain maps on residential property values in the United States.
Our findings indicate that houses in flood zones in the United States are currently overvalued by a total of $43.8 billion (95% confidence interval: $32.6 to $55.6 billion) based on the information in publicly available flood hazard maps alone, raising concerns about the stability of real estate markets as climate risks become more salient and severe. »
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