Location:  360 Heady Hall

Description:  DongGyu Yi (Iowa State University) "An Evidence of Updating Risk Perception:  The Effect of 2008 Great Flood on Property Value in Des Moines"

Abstract: One of the severest flooding events in Iowa, sometimes referred to as “Iowa’s Katrina”, occurred in between June 8 and July 1, 2008. This paper examines how housing prices were impacted by this unexpected event, while controlling for pre-existing flood risk (as captured by 100- and 500-year floodplains). Transaction data from Des Moines housing market for the period from 2000 to 2012 are used to estimate a hedonic price function for the region. Housing units are geo-located to determine whether or not they are in the 100- and 500-year floodplains, as well as whether the 2008 flood inundated the property. A difference-in-difference-in-differences (DDD) approach is used to isolate the impact of the 2008 flood. The results show that the price for the houses in 100-year floodplains were already discounted before the flood and there was no significant change in the price after the flood if the area was inundated; i.e., if the ex ante expectation was fulfilled. However, we do find a significant rebounding in the post-flood price if the area was not actually inundated. On the other hand, the price of properties both in 500-year floodplains and outside of floodplains was not significantly discounted before the flood. However, there was a significant decrease in the price after the flood if the area was inundated. These findings imply that as new information on flooding comes out, the market updates the risk perception for properties, as indicated by a change in the housing price.