Adjusting to the New Normal: River Flood Risk and the Real Estate Market
Do individuals learn from salient river floods and update their risk perceptions accordingly? We exploit the Western European flood in 2021 to estimate changes in property values across German flood risk regions. Flood-prone areas in proximity to the flood or with higher climate change beliefs experience housing price declines, while we observe no statistically significant effects in other flood risk zones. Our results imply that flood risk discounts in the housing market will not adjust uniformly, which may result in suboptimal capital allocation in areas at risk of future flooding.
Gruhl, H., J. Brehm, A. Ghosh, P. Breidenbach and N. aus dem Moore (2025), Adjusting to the New Normal: River Flood Risk and the Real Estate Market. Environmental and Resource Economics (forthcoming)