At least 3.8 million U.S. homes lie in flood plains. Together, they may be overvalued by $34 billion. New research published today in a National Bureau of Economic Research working paper shows that markets fail to incorporate risks from flooding and climate-related catastrophes. Losses from extreme weather events are rising, a function mostly of people and wealth becoming more concentrated where they’re most vulnerable. If home prices more accurately reflected risk, the researchers say, there’d most likely be less development in flood plains.
“The additional risk created by these investments is likely growing due to climate change and the long-lived nature of housing and infrastructure,” write Miyuki Hino of University of North Carolina at Chapel Hill and Marshall Burke of Stanford. “Such concerns extend to other climate hazards as well: both flood-prone and fire-prone locations have experienced substantial development in recent years.”
This new study has not been released into a vacuum: Last week, a joint hearing between the U.S. House of Representatives subcommittees on investigations and oversight and on the environment looked at how to improve the science and communication of flood-risk to property owners. The U.S. government already promotes awareness by publishing maps showing what areas of the country face a flood risk greater than 1% in any given year. Flood plain homes bought with federally backed mortgages must be insured. But researchers disagree on the extent to which—or in some cases, if—homes rise or fall in value when they’re zoned in or out of a flood plain.