Typhoon Hagibis caused land price declines beyond flood zones
A Bank of Japan working paper finds that land prices in inundated areas declined 10 percent after Typhoon Hagibis, with spillover effects extending up to 800 meters beyond flood boundaries. The study used parcel-level data and an event-study approach.
Beyond the inundated zones
The study empirically investigates the impact of Typhoon Hagibis (2019) on land prices, focusing on spatio-temporal dynamics using parcel-level data and inundation maps.
Key findings show that land prices in directly inundated areas declined monotonically by 10 percent over five years post-flood.
Significant negative spillover effects were observed, with non-inundated plots within 100 meters of the flood boundary decreasing by 5 percent.
These effects dissipated beyond 800 meters from the flood boundary.
The impact of official hazard map designations was also significant, with properties outside the flood boundary showing substantial price declines, particularly within 600 meters, and more pronounced in residential areas.
These changes reflect shifts in market participants' subjective perceptions of future flood risk and economic activity, rather than physical damage to buildings.
Three factors explain price changes
To explain the observed patterns, the researchers extend a risk model by incorporating adaptive learning and varying information signal strength based on location.
Simulations identify three key mechanisms: temporal frictions in information dissemination, spatial frictions in information diffusion, and pre-flood risk capitalization via hazard map designations.
Temporal frictions are crucial for matching the gradual, multi-year price decline.
Spatial frictions explain the localized spillovers with geographically decaying impacts.
Finally, prior capitalization is evident from heterogeneous responses across hazard zones, where larger spillovers outside these zones suggest lower ex-ante risk pricing.
This interplay between spatial decay and pre-flood risk capitalization drives the observed post-flood land price dynamics.
Crucial insights, practical gaps
This paper offers crucial, granular insights into how flood risk perceptions translate into tangible land price adjustments, even beyond directly affected areas.
While the theoretical framework effectively explains the observed dynamics, the study's direct implications for proactive policy measures or urban planning are not explicitly detailed.
Future work could translate these findings into actionable recommendations for mitigating climate-related financial risks.