EFFECTS OF DISCLOSURE OF FLOOD-LIABILITY ON RESIDENTIAL PROPERTY VALUES: AN UPDATE

This paper provides a review of the international and local literature assessing the impact of flood risk information on residential property values. We extend the findings of a previous review conducted over a decade ago when flood risk disclosure regimes in Australia were quite different. After a brief discussion of methods typically used for assessing the value of flood risk and their strengths and weaknesses, we examine three questions. On the question of the effect of being located in a floodplain there exists considerable heterogeneity in the empirical results, though flood-prone land is often discounted. The degree of discounting may be associated with the degree of risk, and the discount can often be traced back to a flood event. But sometimes positive attributes of a waterfront or coastal location outweigh any discount. On the question of the effect of an actual flood event on property values, the characteristic effect is discounting in impacted areas, exacerbated by multiple floods in a short time-span and even extending to areas not flooded. Property values typically recover in time. On the question of the effect of floodplain designation and its disclosure, we find it can initiate or increase discounting, or have no effect, or even reduce discounting. This relates to the different forms of disclosure, particularly whether it is mandatory and at what point in the transaction process the flood risk is revealed. We conclude with implications for flood risk managers in Australia.