429. Housing shadow prices in an inundation prone suburb

Alicia N. Rambaldi, Ryan R. J. McAllister, Kerry Collins & Cameron S. Fletcher, School of Economics Discussion Paper No. 429 June 2011, School of Economics, The University of Queensland. Australia.

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Abstract

For urban areas already exposed to flooding risk, the prospect of increased population densities and of more frequent extreme weather associated with climate change is alarming. Proactive adaptation, including changes to planning schemes, can reduce the risks faced in such urban areas. However empirical information detailing the benefits of proactive adaptation is limited. Further, in order to engage and motivate residents within exposed areas to participate in any adaptation, how (and when) adaptation measures will impact on individuals need to be understood. To inform such thinking, we present here a detailed case study of climate adaptation to inundation. We present a hedonic approach that evaluates property values and preferences in an inner city suburb in Brisbane, Australia, which contains areas that are in a floodplain. Using a dataset specially constructed by the authors, the study defines a continuous effect of flooding such that discount on property prices depends on its vertical distance relative to its 1-in-100-year flood level. The discount is of the order of 5.5% per metre below the 1-in-100 year flood level. Due to the detailed hedonic characteristics included in the dataset, the study also provides estimates of the shadow prices of housing characteristics and distances to amenities (such as bus stops, train stations, parks and bikeways). Such factors need to be considered when holistically assessing the dynamics of urban areas in response to planning changes.