Dutch dilemma: Housing prices and flood risk exposure

Abstract

This article studies the impact of flood risk exposure on housing prices in a major river delta. Analyzing 1.8 million property transactions from 1998 to 2023 in the Netherlands, we find an average price discount of 1.1%. We observe considerable heterogeneity in price effects driven by exposure intensity, institutional settings that vary across flood zones, time, and buyer sophistication. Our results suggest that homeowners incorporate flood risk in their buying decisions. However, collective adaptation measures considerably mitigate these negative price effects. The costs of adaptation projects seem relatively small in comparison to the economic value they create through shielding the housing market from flood risk.