Flooding Policy, Housing Values, and Public Finance

• In Event: Flood Risk, Insurance, and Housing Finance

Abstract

Flooding poses a serious threat to private property and communities, and the federal government has developed special flood hazard areas (SFHAs) that define 100-year flood plains as well as the National Flood Insurance Program (NFIP) that helps homeowners gain insurance in case of floods. States and local goverments can work with the Federal Emergency Management Agency (FEMA) to develop flood maps with SFHAs, and communities can take a number of steps to qualify as NFIP communities. To further incentivize communities to take steps that would mitigate flood damage, communities can qualify for different levels of FEMA's Community Rating System (CRS), which allows homeowners in those communities to receive discounts on their flood insurance (with better scores resulting in greater discounts). While studies have examined various impacts of the CRS, less is known about how it affects housing prices and subsequent community finances. Using CRS status of the community in nine states (CT, DE, MD, NJ, NY, OH, PA, VA, WV) and using CoreLogic assessment data, Home Mortgage Disclosure Act housing and loan data, Census of Government public finance data for municipalities, control variables, fixed effects and clustered standard errors, we estimate a number of econometric models.  We test separate models with risk-set nearest-neighbor matching (Mahalanobis distance), stacked difference-in-difference (DID), event study, Detrended DID/event-study, Entry-selection logit, and Rate/share robustness and composition-adjusted pricing (HMDA). For housing loans, the CRS is not associated with significant differences in loan originations, applications or share of refinance loans, but it is associated with significantly lower denial rates on loans. Results for public finance suggest that communities with CRS exhibit higher property taxes, total taxes, and overall revenue, and the results for total taxes are strongly associated with time periods 3-8 years post adoption. Several sensitivity tests are conducted on the results. The results suggest that FEMA's Community Rating System has important implications for homeowners and municipalities.

Authors

• Lilliard Richardson, Pennsylvania State University
  Presenting Author

• Douglas S Noonan, Indiana University
  Non-Presenting Co-Author