An analysis of housing values and national flood insurance reform under the Biggert-Waters Act of 2012

Abstract

Previous research has shown that both flood risk and insurance premiums are capitalized in housing values. This paper examines the effect of National Flood Insurance Program reform implemented by the Biggert Waters Act of 2012 and the Homeowners Flood Insurance Affordability Act of 2014 on housing values over a three-and-a-half year time period. It is hypothesized that the effects of increasing flood insurance rates through the elimination of established subsidies was capitalized in home values resulting in a loss of value in areas where subsidies are maintained. The paper presents a hedonic price difference-in-difference OLS model which is then tested for flexibility to the policy period and robustness to the treatment group. The evidence indicates that (1) housing values trend differently for areas with subsidies than areas without and (2) that this effect is correlated with flood insurance reform periods and robust to the definition of the treatment group. I conclude that the Biggert-Waters Act had a negative impact on median home values for areas with subsidized policies.