Impacts of flood zoning policies on housing markets: Evidence from the national flood insurance program

Abstract

Floods pose significant threats in the United States, and the National Flood Insurance Program uses Special Flood Hazard Area (SFHA) designations to guide regulations intended to reduce flood damage. Yet the effect of SFHA regulation on housing markets is difficult to identify because floodplain status is correlated with flood risk and unobserved amenities. This study estimates SFHA policy effects on assessed housing values by combining parcel-level flood risk data, property-level housing information, and Federal Emergency Management Agency (FEMA) SFHA boundaries in Texas. Using a regression discontinuity (RD) design, we compare single-family homes just inside and just outside invariant SFHA boundaries to better separate local policy effects from flood risk and other confounding factors. Relative to a standard hedonic model, the RD analysis yields different estimates. The hedonic model suggests lower assessed values for coastal-county properties inside floodplains and no significant effect inland. In contrast, the RD estimates show no significant boundary effect in coastal counties and about a 2% assessed-value premium for homes inside SFHAs in inland counties. These findings suggest that assessed valuations do not consistently capitalize flood-zone designation and associated regulations, although they do not necessarily imply the same pattern for transaction prices.