YNTR: Americans Are Paying $34 Billion too Much for Houses in Flood Plains

You Need to Read Bloomberg Green’s Americans Are Paying $34 Billion Too Much for Houses in Flood Plains by Eric Roston.

Flood plain housing comes with greater climate risk, but markets aren’t pricing that risk effectively. New research shows how much buyers overpaid for these homes relative to their risk-adjusted value. This market failure exposes owners, banks, and insurance companies to higher climate-related losses. Built up wetlands also do a worse job naturally removing carbon from the air.

At least 3.8 million U.S. homes lie in flood plains. Together, they may be overvalued by $34 billion.

 

New research published today in a National Bureau of Economic Research working paper shows that markets fail to incorporate risks from flooding and climate-related catastrophes. Losses from extreme weather events are rising, a function mostly of people and wealth becoming more concentrated where they’re most vulnerable. If home prices more accurately reflected risk, the researchers say, there’d most likely be less development in flood plains.

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