Skip to main content

Advertisement

SpringerLink
Log in

Hurricane risk perceptions and housing market responses: the pricing effects of risk-perception factors and hurricane characteristics

  • Original Paper
  • Published:
Natural Hazards Aims and scope Submit manuscript

Abstract

This paper uses the difference-in-differences method to assess how home prices change in the periods after major hurricanes in Miami-Dade County and links these changes to risk-perception determinants that affect market participants’ determination of the prices they are willing to accept or pay. The empirical results shed light on the effects of how risk-perception determinants, affected by different heuristics, can be important contributors to housing market dynamics caused by the physical effects of extreme weather events. We find that perception determinants related to hurricane intensity have a larger effect on housing prices than those related to hurricane frequency. More recent and stronger hurricane experiences also have a strong association with decreased housing prices. We find no evidence of a perception factor leading to underestimating chronic risks. The findings identify important nuances related to the housing market and contribute to enhancing coastal housing market stability from uncertainty about extreme weather by suggesting sensitive post-disaster policy reactions based on the effects of risk-perception factors.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Data availability

The datasets generated during and/or analyzed during the current study are available from the corresponding author on reasonable request.

Notes

  1. Locational preferences in migration are income dependent (De Koning and Filatova 2020). Wealthier households have the resources and capacities for relocating to a safer location, while economically vulnerable households who have an insufficient resource for migration could be trapped in risk-prone areas (Black et al. 2013). Such migration phenomena could influence market equilibrium, and subsequently cause socio-demographic shifts (Walker and Burningham 2011).

  2. The 5th, 10th, and 25th percentiles of the building ages are 13, 18, and 30, respectively.

  3. Median distance between houses and the shoreline is 21 km in the study area. 10% of the houses are located within 3 km of the ocean.

  4. Given the fact that every hurricane has different magnitudes of storm surge, to improve accuracy for identifying storm surge-impacted properties, we used the actual storm surge heights of each hurricane and compared with the SLOSH map. A total of 126,740 houses are at-risk of storm surge with all levels of the Saffir–Simpson hurricane scale 5 (a total of 7,015 houses were affected when category 1 hurricanes occurred; 28,180 houses with category 2 hurricanes; 54,896 houses with category 3 hurricanes; 100,266 houses with category 4 hurricanes.

  5. The outer edges of individual hurricanes are constructed based on the average maximum wind speed of each storm and the structural characteristics of the hurricane from NOAA’s historical hurricane track data.

References

  • ACS (2017) U.S. Census Bureau’s 2017 American Community Survey 1-year estimates. Retrieved from https://www.census.gov/quickfacts/miamidadecountyflorida

  • Albouy D (2004) Program evaluation and the difference in difference estimator. Economics 131:1–4

    Google Scholar 

  • Atreya A, Ferreira S, Kriesel W (2013) Forgetting the flood? an analysis of the flood risk discount over time. Land Econ 89(4):577–596

    Article  Google Scholar 

  • Below S, Beracha E, Skiba H (2017) The impact of Hurricanes on the selling price of coastal residential real estate. J Hous Res 26(2):157–178

    Article  Google Scholar 

  • Beracha E, Prati RS (2008) How major hurricanes impact housing prices and transaction volume. Real Estate Issues - American Society of Real Estate Counselors 33(1):45–57

    Google Scholar 

  • Bernstein A, Gustafson MT, Lewis R (2019) Disaster on the horizon: the price effect of sea level rise. J Financ Econ 134(2):253–272

    Article  Google Scholar 

  • Bin O, Polasky S (2004) Effects of flood hazards on property values: evidence before and after Hurricane Floyd. Land Econ 80(4):490–500

    Article  Google Scholar 

  • Bin O, Crawford TW, Kruse JB et al (2008a) Viewscapes and flood hazard: coastal housing market response to amenities and risk. Land Econ 84(3):434–448

    Article  Google Scholar 

  • Bin O, Kruse JB, Landry CE (2008b) Flood hazards, insurance rates, and amenities: evidence from the coastal housing market. J Risk Insur 75(1):63–82

    Article  Google Scholar 

  • Black R, Arnell NW, Adger WN et al (2013) Migration, immobility and displacement outcomes following extreme events. Environ Sci Policy 27:S32–S43

    Article  Google Scholar 

  • Bogardus Jr ST, Holmboe E, Jekel JF (1999) Perils, pitfalls, and possibilities in talking about medical risk. JAMA 281(11):1037–1041. https://doi.org/10.1001/jama.281.11.1037

    Article  Google Scholar 

  • Boulton E (2016) Climate change as a ‘hyperobject’: a critical review of Timothy Morton’s reframing narrative. Wiley Interdiscip Rev Clim Change 7(5):772–785

    Article  Google Scholar 

  • Cangialosi JP, Latto AS (2018) Berg R. Hurricane Irma. National Hurricane Center, National Hurricane center tropical cyclone report, pp 1–11

    Google Scholar 

  • Carbone JC, Hallstrom DG, Smith VK (2006) Can natural experiments measure behavioral responses to environmental risks? Environ Res Econ 33(3):273–297

    Article  Google Scholar 

  • Charness G, Levin D (2005) When optimal choices feel wrong: a laboratory study of bayesian updating, complexity, and affect. Am Econ Rev 95(4):1300–1309

    Article  Google Scholar 

  • Charness G, Karni E, Levin D (2007) Individual and group decision making under risk: An experimental study of Bayesian updating and violations of first-order stochastic dominance. J Risk Uncertain 35(2):129–148

    Article  Google Scholar 

  • Chivers J, Flores NE (2002) Market failure in information: the national flood insurance program. Land Econ 78(4):515–521

    Article  Google Scholar 

  • Coch NK (1995) Geohazards: Natural and Human. Prentice Hall, Englewood Cliffs, NJ

    Google Scholar 

  • Collins TW, Grineski SE, Chakraborty J (2018) Environmental injustice and flood risk: a conceptual model and case comparison of metropolitan Miami and Houston, USA. Reg Environ Change 18(2):311–323

    Article  Google Scholar 

  • De Koning K, Filatova T (2020) Repetitive floods intensify outmigration and climate gentrification in coastal cities. Environ Res Lett 15(3):034008

    Article  Google Scholar 

  • Deryugina T (2013) How do people update? the effects of local weather fluctuations on beliefs about global warming. Clim Change 118(2):397–416

    Article  Google Scholar 

  • Epley D (2017) Residential property insurance risk by location. J Real Estate Lit 25(1):189–205

    Article  Google Scholar 

  • Ewing BT, Kruse JB, Wang Y (2007) Local housing price index analysis in wind-disaster-prone areas. Nat Hazards 40(2):463–483

    Article  Google Scholar 

  • FEMA (2018) Special Flood Hazard Area. Available at: https://www.fema.gov/special-flood-hazard-area (accessed October 28)

  • Geng N (2018) fundamental drivers of house prices in advanced economies. International Monetary Fund, Washington, D.C., pp 1–24

    Google Scholar 

  • Grabich SC, Robinson WR, Konrad CE et al (2017) Impact of hurricane exposure on reproductive health outcomes, Florida, 2004. Disaster Med Publ Health Prep 11(4):407–411

    Article  Google Scholar 

  • Graham JE Jr, Hall WW Jr (2001) Hurricanes, housing market activity, and coastal real estate values. Apprais J 69(4):379–387

    Google Scholar 

  • Graham E, Hall W, Schuhmann P (2007) Hurricanes, catastrophic risk, and real estate market recovery. J Real Estate Portf Manag 13(3):179–190

    Article  Google Scholar 

  • Hallstrom DG, Smith VK (2005) Market responses to hurricanes. J Environ Econ Manag 50(3):541–561

    Article  Google Scholar 

  • Herdener N, Wickens CD, Clegg BA, Smith CAP (2016) Anchoring and adjustment with spatial uncertainty in trajectory prediction. Proc Human Factors Ergonom Soc Ann Meet 60(1):1605–1609. https://doi.org/10.1177/1541931213601370

    Article  Google Scholar 

  • Kates RW, Travis WR, Wilbanks TJ (2012) Transformational adaptation when incremental adaptations to climate change are insufficient. Proc Natl Acad Sci 109(19):7156–7161

    Article  Google Scholar 

  • Keller C, Siegrist M, Gutscher H (2006) The role of the affect and availability heuristics in risk communication. Risk Anal 26(3):631–639

    Article  Google Scholar 

  • Kim SK (2020) The economic effects of climate change adaptation measures: evidence from Miami-Dade County and New York City. Sustainability 12(3):1097

    Article  Google Scholar 

  • Kuminoff NV, Parmeter CF, Pope JC (2010) Which hedonic models can we trust to recover the marginal willingness to pay for environmental amenities? J Environ Econ Manag 60(3):145–160

    Article  Google Scholar 

  • Langousis A, Veneziano D. (2009) Theoretical model of rainfall in tropical cyclones for the assessment of long‐term risk. J Geophys Res Atmos 114(D2)

  • Lansford NH, Jones LL (1995) Recreational and aesthetic value of water using hedonic price analysis. J Agric Resour Econ 20(2):341–355

    Google Scholar 

  • Larcom S, She P-W, van Gevelt T (2019) The UK summer heatwave of 2018 and public concern over energy security. Nat Clim Chang 9(5):370–373

    Article  Google Scholar 

  • Lavell A, Oppenheimer M, Diop C, et al. (2012) Climate change: new dimensions in disaster risk, exposure, vulnerability, and resilience. Cambridge, UK, and New York, NY, USA: Cambridge University Press

  • List JA (2003) Does market experience eliminate market anomalies? Q J Econ 118(1):41–71

    Article  Google Scholar 

  • Lo AY, Jim CY (2015) Come rain or shine? Public expectation on local weather change and differential effects on climate change attitude. Public Underst Sci 24(8):928–942

    Article  Google Scholar 

  • McCoy SJ, Walsh RP (2018) Wildfire risk, salience & housing demand. J Environ Econ Manag 91:203–228

    Article  Google Scholar 

  • MDC (2021) Flood zone maps. Miami Dade County, Miami-Dade County, Florida

    Google Scholar 

  • Meyer RJ, Baker J, Broad K et al (2014) The dynamics of hurricane risk perception: real-time evidence from the 2012 Atlantic hurricane season. Bull Am Meteor Soc 95(9):1389–1404

    Article  Google Scholar 

  • Michalsen A (2003) Risk assessment and perception. Inj Control Saf Promot 10(4):201–204. https://doi.org/10.1076/icsp.10.4.201.16782

    Article  Google Scholar 

  • Morgan A (2007) The impact of Hurricane Ivan on expected flood losses, perceived flood risk, and property values. J Hous Res 16(1):47–60

    Article  Google Scholar 

  • Muller NZ, Hopkins CA (2019) Hurricane Katrina Floods New Jersey: the role of information in the market response to flood risk. National Bureau of Economic Research cham, Cambridge, Massachusetts

    Book  Google Scholar 

  • Murphy A, Strobl E (2009) The impact of hurricanes on housing prices: evidence from US coastal cities. Munich Personal RePEc Archive cham, Munich, Germany

    Google Scholar 

  • NOAA (2018) Historical Hurricane Tracks. In: Administration NOaA (ed). Washington, D.C

  • Nyce C, Dumm RE, Sirmans GS et al (2015) The capitalization of insurance premiums in house prices. J Risk Insur 82(4):891–919

    Article  Google Scholar 

  • Ortega F, Taṣpınar S (2018) Rising sea levels and sinking property values: Hurricane Sandy and New York’s housing market. J Urban Econ 106:81–100

    Article  Google Scholar 

  • Otto P, Mehta A, Liu B (2018) Mind the gap: towards and beyond impact to enhance tropical cyclone risk communication. Trop Cyclone Res Rev 7(2):140–151

    Google Scholar 

  • Peacock WG, Brody SD, Highfield W (2005) Hurricane risk perceptions among Florida’s single family homeowners. Landsc Urban Plan 73(2–3):120–135

    Article  Google Scholar 

  • Pryce G, Chen Y, Galster G (2011) The impact of floods on house prices: an imperfect information approach with myopia and amnesia. Hous Stud 26(02):259–279

    Article  Google Scholar 

  • Rambaldi AN, Ganegodage KR and McAllister RR (2017) Myopia and amnesia in property prices. Evidence from two floods. Society for Economic Measurement Annual Conference. Massachusetts Institute of Technology, Cambridge: Editorial Express

  • Rebecca R, Beckley LE, Tull M (2015) The economic value of cyclonic storm-surge risks: a hedonic case study of residential property in Exmouth. Springer, Western Australia. Climate Change Management. Cham, pp 143–156

    Google Scholar 

  • Renn O and Rohrmann B (2000) Cross-cultural risk perception: a survey of empirical studies. New York, NY: Springer Science & Business Media

  • Rohrmann B, Renn O (2000) Risk perception research. In: Cross-cultural risk perception. Springer, pp 11–53

    Chapter  Google Scholar 

  • Shao W, Gardezi M, Xian S (2018) Examining the effects of objective hurricane risks and community resilience on risk perceptions of hurricanes at the county level in the US Gulf Coast: an innovative approach. Ann Am Assoc Geogr 108(5):1389–1405

    Google Scholar 

  • Tian X-L, Guan X (2015) The impact of hurricane katrina on students’ behavioral disorder: a difference-in-difference analysis. Int J Environ Res Public Health 12(5):5540–5560

    Article  Google Scholar 

  • Walker G, Burningham K (2011) Flood risk, vulnerability and environmental justice: evidence and evaluation of inequality in a UK context. Crit Soc Policy 31(2):216–240

    Article  Google Scholar 

  • Walls M, Magliocca N, McConnell V (2018) Modeling coastal land and housing markets: understanding the competing influences of amenities and storm risks. Ocean Coast Manag 157:95–110

    Article  Google Scholar 

  • Walsh P, Griffiths C, Guignet D et al (2019) Adaptation, sea level rise, and property prices in the Chesapeake Bay watershed. Land Econ 95(1):19–34

    Article  Google Scholar 

  • Xiao Y (2017) Hedonic Housing Price Theory Review. Springer, Urban Morphology and Housing Market. Singapore, pp 11–40

    Google Scholar 

  • Zander KK, Wilson T, Garnett ST (2020) Understanding the role of natural hazards in internal labour mobility in Australia. Weather Clim Extrem 29:100261

    Article  Google Scholar 

Download references

Funding

The authors declare that no funds, grants, or other support were received during the preparation of this manuscript.

Author information

Authors and Affiliations

  1. Moon Soul Graduate School of Future Strategy, Korea Advanced Institute of Science and Technology, Bldg. N5, 291 Daehak-ro, Yuseong-gu, Daejeon, 34141, Korea

    Seung Kyum Kim

  2. Center for Risk Analysis & Center for Health Decision Science, Harvard University, 718 Huntington Ave., Boston, MA, 02115, USA

    James K. Hammitt

  3. Toulouse School of Economics, Université de Toulouse Capitole, 1 Esplanade de l’Université, 31080, Toulouse, France

    James K. Hammitt

Authors
  1. Seung Kyum Kim
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. James K. Hammitt
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

Seung Kyum Kim contributed to conceptualization, methodology, data collection, data analysis, and writing—original draft preparation, validation, manuscript editing, and project administration. James K. Hammitt contributed to conceptualization, manuscript editing, and validation of methodology.

Corresponding author

Correspondence to Seung Kyum Kim.

Ethics declarations

Conflict of interest

The authors have no competing interests to declare that are relevant to the content of this article.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Supplementary Information

Below is the link to the electronic supplementary material.

Supplementary file1 (DOCX 232 KB)

Rights and permissions

Springer Nature or its licensor holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Kim, S.K., Hammitt, J.K. Hurricane risk perceptions and housing market responses: the pricing effects of risk-perception factors and hurricane characteristics. Nat Hazards 114, 3743–3761 (2022). https://doi.org/10.1007/s11069-022-05541-2

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11069-022-05541-2

Keywords

Search

Navigation