Real Estate Values and Flooding: What’s the Impact?

By
Industry Observer

It is reasonable to question why anyone would buy a home in a floodplain. Perhaps the house sits in a beautiful historic town, or maybe some feel that having a picturesque waterfront property is worth the trouble caused by a flood. Unfortunately, climate change and global warming will be increasing both the severity and frequency of floods around the world. How this will impact the real estate market is a concern. Although the obvious answer is declining property values, the situation is multifaceted and consists of contradictory answers.

 

How Does Flooding Impact Real Estate Price?

According to the Insurance Bureau of Canada, Toronto’s 2013 storm and the resulting flash flooding, was the costliest natural disaster in Ontario history, with property damage amounting to more than $850 million. Elsewhere in the world, the situation is not any better. In England, one in six homes are flood-prone, says the U.K.’s Environment Agency. In Germany, forecasts show that major flooding events which occur on average every 50 years, will now happen closer to every 25 years.

 

The question that intimidates both homeowners and real estate professionals is this: Does flooding negatively impact home prices? The answer is yes and no.

 

Does Being Listed on a Floodplain Map Influence Market Prices?

There is a lack of consensus on how a floodplain map impacts the value of a property since most studies focus on price changes in the event of an actual flood. In general, flood hazard mapping does not appear to significantly affect prices.

 

For example, Dr. Burrell Montz from the State University of New York showed that properties in flood zones did not suffer from declining values in New Zealand. On the other hand, in California, floodplain real estate prices were 4.3 percent less than their counterparts in areas that were not prone to flooding.

 

Toronto Flood Vulnerable Areas GTA Flood Vulnerable Areas according to Toronto and Region Conservation Authority

 

How Does an Actual Flood Event Affect Home Prices?

In the event of an actual flood, prices tend to fall. Even nearby unaffected properties may see their values plummet. The severity of a decrease in value depends on various factors like the location of the home within a flood zone and the risk of repeat flood events. This can be offset to some degree by the appeal of a waterfront location.   

 

Surprisingly, flooding can increase property value too. Owners who invest in renovation and waterproofing solutions often see their investments stabilize or even increase, which is why it is important to take preventative measure and consult a professional. Oftentimes, the city itself will take extensive preventative steps. In the aftermath of the Toronto storm, the government pledged $3.1 billion over 10 years for wastewater and stormwater collection improvement.

 

Oregon demonstrates the differing effects of flood hazard mapping and an actual flood event well. Introducing floodplain regulatory measures to the city had no effect on price, but when a series of floods occurred, property value fell by 19 to 26 percent, according to Oregon State University professor Dr. Keith Muckleston.  

 

Luckily, prices of a flood-affected housing market don't stay in the low for too long. Brisbane suffered some of its worst floods in 2011 when neighbourhoods in its southeast parts were uprooted, but its market has recovered since then. Similarly, average home prices in the historic town of Tewkesbury, U.K. remained steady despite the flood of 2007. Real estate agencies in Tewkesbury, Hull, Carlisle and York, in fact, are in agreement that property values tend to fall by 10 percent in the aftermath of a flood with no long-term impact.  

 

Calgary real estate agents also noted a price drop of 10 percent after the Calgary 2013 flood. However, the number was as high as 25 and buying and selling homes has become more complicated than before, with lenders now requiring inspection and documentation to verify the home’s disaster history. A year after the flood as Calgary’s market rebounded slowly, foreclosures and ‘land for sale’ signs continued to saturate real estate news.   

 

The relationship between the housing market, prices and flooding is difficult to quantify. Although a price drop in property values in the aftermath of a flood is often the result, some areas have managed to mitigate the effects through renovation, improvement, and implementation of waterproofing and flood-proofing solutions. The appeal of waterfront properties is too strong to discourage prospective buyers, but as future floods become more aggressive, homeowners should think twice if they want to protect their investment.

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flood
real estate
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basement waterproofing
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