Alicia N. Rambaldi, K. Renuka Ganegodage, Cameron S. Fletcher, Felix Lipkin, School of Economics Discussion Paper No. 536 December 2014, School of Economics, The University of Queensland, CSIRO Ecosystem Sciences.

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This study proposes a modeling approach to disentangle the discount due to flooding in residential properties that are located in coastal areas. The study makes three contributions. The first is to incorporate a continuous measure of flood risk in a study of coastal areas, as earlier studies modeled flood risk using a binary variable. The second is to estimate a discount over a three dimensional amenities’ set (degrees of view of the ocean, proximity to the ocean and proximity to other waterways), in order to provide a valuation of the trade o↵ between ’views/proximity’ and flooding. And, finally it is the first study of its kind for Australia. Data for two coastal sites in the state of Queensland, Australia are used in the study. The results indicate that the identification of a significant discount due to inundation risk is highly dependent on views and proximity to ocean and waterways, but the study demonstrates the methodology proposed here is able to disentangle statistically significant discounts due to inundation risk.