Property Prices and New Information on Flood Risks : A distance defined Difference-in-Differences Analysis in Sweden

Abstract: In this paper, I estimate the economic cost associated with flood risks in Sweden. A hedonic price model combined with a distance defined difference-in-differences method is used to estimate the marginal change in property prices due to new information regarding flood risks. The results reveal a robust effect on owner-occupied properties from predicted floods from the sea. The willingness to pay for increasing the distance to the predicted flooded area is estimated to be 0.187% per meter. A similar, though smaller (0.045% per meter) effect is found for all properties in proximity to floods from streams. The effects of the information regarding flood risks are limited to the year after the release. The results are especially important in a Swedish setting due to its numerous streams and lakes and extensive coastline. That the value of the risk of floods is limited to one year should be further investigated and considered when establishing policies regarding the information provided when a property is listed for sale.