The Impact of Distant Hurricane on Local Housing Markets

• Published in: The journal of real estate finance and economics Vol. 66; no. 2; pp. 327 - 372
• Main Authors: Fang, Lu, Li, Lingxiao, Yavas, Abdullah
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-02-2023; Springer Nature B.V
• Subjects: Economics; Economics and Finance; Financial Services; Floods; Housing; Housing market; Housing prices; Hurricanes; Regional/Spatial Science; Transactions; United States > US; Miami-Dade County Florida; Perception; Hurricanes; House Price; Flood risk
• ISSN: 0895-5638; 1573-045X
• DOI: 10.1007/s11146-021-09843-3

This study investigates whether the local housing markets can be affected by the occurrence of a large-scale but distant hurricane without direct impact. Using a dataset of residential transactions in Miami-Dade County, FL between 2005 and 2014, we find that the impact of a property’s flood risk exposure on its value varies over time, with a price penalty of 4% in hurricane striking period. By contrast, within a quiet hurricane period, properties within high flood hazard zones demand a price premium ranging roughly from 4% to 6%, which may represent the price impact of water-related amenities. The premium declined significantly upon Hurricane Sandy. Several possible explanations are provided and tested to explain the main findings. Our findings indicate that the occurrence of a disastrous hurricane which impacted faraway regions also raised local home buyers’ perception of flood risk, but for a short period of time (one quarter).