The Price of Coastal Erosion and Flood Risk: A Hedonic Pricing Approach

Abstract

Accelerated coastal erosion and elevated risks of flooding due to global warming put enormous burden on the ecosystems and economic health of coastal communities. Optimal policies to lessen these negative impacts require an estimation of their costs and benefits. The aim of this paper is to calculate the costs of beach erosion and flood risk through the valuation of property prices in Hilton Head Island, a barrier island located in South Carolina, USA. Spatial lag hedonic pricing was introduced in order to account for spatial autocorrelation in the dataset. The results show that properties that are located within the zone of high, or very high, flood risk experience a 15.6% reduction in value. The implicit price of being located close to an eroded beach is approximately 26% of the price of an oceanfront property. However, this negative impact on property value diminishes with distance from the shoreline.