A Flood of Construction: The Role of Levees in Urban Floodplain Development

Abstract

We estimate the effect of levee-related flood-risk reduction on rates of new housing development. Using a fixed-effect Poisson regression and a nonlinear difference-in-differences identification strategy, we find that newly constructed levees increased the rate of residential development by more than 50% compared with areas without levee protection. Contemporary analysis using a duration model indicates effects lasting decades later, with the magnitude of the induced development attenuating over time. Our findings inform discussion of the “levee effect” and highlight the possibility that further flood-risk reduction investment in levees may be partially offset through increased development activity. (JEL R31, Q58)