Does Flooding Affect Home Values?

by Allied / Friday, 10 July 2020 / Published in Flood Restoration

The simple answer to that question is yes. Flooding and the risk of flooding both decrease the value of a home. How both of those things, damage and risk of damage, affect a home’s value will differ quantitatively, geographically, and subjectively.

In a way, a home’s value after a flood is like the opposite of a flood.

In a flood, there’s a sudden accumulation of liquid and then a subsequent, gradual loss of liquid. After a house is flooded, there’s a sudden loss of real estate liquidity and then a subsequent, gradual accumulation of liquidity.

In other words, the decrease in home value is impermanent. It’s more broadly impacted by the location of the home itself and its proximity to or within a floodplain. The market value rebounds after a flood occurs, but there are other factors that come into play like risk and insufficiently repaired damage.

Let’s look at some market research about the impact of a flood on home value.

Economist Thoughts On Home Flooding

Fortunately, economists have studied this in various areas of the U.S. and the world at large.

One study published by the Journal of Real Estate Finance and Economics looked at the effects of flood hazards on residential property value in North Dakota’s Fargo-Moorhead Metropolitan Statistical Area from 2007 to 2013.

There were a number of findings, but something stuck out:

Home values drop after repeat floods, but that decrease is temporary. The prices rebounded, and that was despite additional flood events. A single flood wasn’t enough to trigger changes in risk perception. Concerns about flood risk only spiked after a second, smaller flood.

Columbia University researchers looked at high tide flooding in the Miami-Dade area and found that even properties that are not at-risk, but that are near roads that are at risk of flooding, could lose value — about $3.71 per square foot annually.

A study from First Street Foundation discovered between 2005 to 2017 flooding along the east coast decreased home value by a total of $16 billion. At a city level, New Jersey was hit particularly hard. Beach Haven lost $541,193,136 in home value. Ocean City wasn’t far behind at $531 million.

A McKinsey study stated that in Florida, estimates from past trends suggest there could be a loss of $30 to $80 billion (15 to 35 percent) by 2050 due to the risks of flooding.

The Union of Concerned Scientists looked at the risk of chronic inundation (which is when flooding is so frequent that the land can no longer be used in the same way) by 2045 as a result of rising sea levels. The losses were substantial on every American coast. 

Suffice to say, flooding does affect home value at a micro and macro level. 

A lot of the effect on home values comes from risk assessment. 

Living in Flood Zones Can Impact Home Value

A home in a 100-year or 500-year floodplain will have a diminished value, which also comes with increased flood insurance costs.

Quick aside: a 100-year floodplain is an area that has a one percent chance to flood each year, often simplified to mean that it’s likely the area will be flooded once every 100 years. A 500-year flood plain has a .2 percent chance of flooding every year.

Back to the study of home values in North Dakota, home values within a floodplain were 3.5 to 12.2 percent lower than similar houses outside a floodplain, with that increasing by 14 to 16 percent after a major flooding event followed by a second non-major flood.

Hurricane Sandy also had some interesting effects on policy that subsequently impacted the value of houses in New York. One 2015 study looked at how new Flood Insurance Rate Maps that were developed by FEMA reassessed and added significantly more property in New York City to a 1 percent or .02 percent flood zone, causing an 83 percent increase in insurance costs. 

The author of the study found that property newly placed in these flood zones after 2015 decreases their value by 8.6 percent on average. 

Another report published in Science Daily looked at Carteret County and stated:

“The findings indicate that the price of a residential property located within a floodplain is significantly lower than an otherwise similar house located outside the flood zone. On average, [a] location within a floodplain lowers estimated sales value $11,600, representing a 7.3 percent reduction of the average house sales price.”

The bottom line is this:

Yes, flooding affects home values, but so does the risk of flooding.

How To Maintain Home Value After A Flood

It’s no secret that the condition of your home plays a massive roll in overall value. So in order to maintain home value after a flood it is critical to get things back into proper living conditions.

Water damage can cause many health hazards and property damage for years after the flooding. Keeping things plain and simple… don’t use a band-aid to address an amputation.

Flooding repair requires expert attention to get your home back into working order and maintain it’s value. If you experienced flooding around Kalispell Montana, contact Allied 24/7 restoration for your home restoration needs.

Contact us or give us a call at (406) 756-4357!