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EXCESS VULNERABILITY FROM SUBSIDIZED FLOOD INSURANCE: HOUSING MARKET ADAPTATION WHEN PREMIUMS EQUAL EXPECTED FLOOD DAMAGE

SCOTT J. COLBY

107 Otis P. Marshall Hall, South St., Morrisville, NY 13408, USA

E-mail Address: [email protected]

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KATHERINE Y. ZIPP

https://orcid.org/0000-0002-7206-5159

Department of Agricultural Economics, Sociology and Education, 112-F Armsby, University Park, PA 16802, USA

E-mail Address: [email protected]

Corresponding author.

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https://doi.org/10.1142/S2010007820500128Cited by:3 (Source: Crossref)

Abstract

We calculate there are 8.1% more houses in Allegheny County, PA (Pittsburgh) due to flood insurance subsidies. Conversely, if/when National Flood Insurance Program (NFIP) premiums rise by 50% to equal expected damages, property values will decrease by 8.8% in the short-term, with about half of that recuperated in the long run (4.7%) as quality-adjusted housing stocks contract by 7.5% over decades. This analysis informs community planning and current NFIP revisions that strive to balance solvency and social consequences. Furthermore, our extension of Poterba’s (1984) dynamic user-cost of housing model can be used in integrated assessment models of climate change adaptation.

Keywords:

JEL: D81, G22, H53, R31

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