The Effects of a Mandatory Flood Risk Disclosure Law on Rent Prices in Texas

• In Event:  Caring For and About Water: Quality, Flood Risk, and Equity

Abstract

Seven states in the United States have passed their own version of a mandatory flood risk disclosure law for rental properties, mandating landlords with rental units in high flood risk areas to disclose their properties’ risk to prospective tenants prior to the signing of a lease agreement. These policies aim to increase salience on flood risk and address market failures in housing. In this paper I examine such a law affecting rental properties in Texas, which was enacted on January 1st, 2022. Specifically, I explore i) the effect of the disclosure law on rental property prices, ii) whether the law exacerbates existing inequality in flood risk exposure, and iii) how making information salient might sharpen the law as a policy tool. Using proprietary CoreLogic data on Texas’ rent prices for the years 1970-2024 and combining it with FEMA’s National Flood Hazard Layer and Census data, I compare rent prices and sociodemographic profiles before and after the policy was passed for rental units located in high flood risk areas versus outside the floodplain. Preliminary results indicate that rent prices are lower for rental properties residing in floodplains, compared to those with no flood risk, following the passage of the disclosure law. Specifically, I find that, on average, rent prices decrease by $77 for properties located within flood hazard areas post enactment. The most significant price reduction occurs in 2023, with rent prices falling by approximately $85. These findings suggest that information disclosure has enhanced efficiency by integrating flood risks into property rental prices. Lastly, employing a difference-in-differences (DID) approach, I contribute to the research on mandatory flood risk disclosure laws, particularly in analyzing the impact of such laws on rental properties, which, to my knowledge, has not been previously explored.

Author

• Iris Marianna Margetis, Michigan State University
  Presenting Author