Association for Public Policy Analysis & Management

Our research intends to investigate the impact of reducing government subsidies for residential rehabilitation following floods and hurricanes on the direction of the housing market prices and consequential effect on the growth of flood-prone cities. Specifically, we assess how housing prices perceived by sellers in North Carolina responded to the enactment of the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowners Flood Insurance Affordability Act of 2014 that followed it. Congress enacted the Biggert-Waters Flood Insurance Reform Act in 2012, which increased premiums by 25 percent on an annual basis until the flood insurance more accurately captures the risks the government bears and phased out exemptions from getting flood insurance. In 2014 Congress passed the Homeowners Flood Insurance Affordability Act to slow the rate of increase to 18 percent per year (Indaco, Ortega, and Taşpınar, 2018).

We use a differences-in-differences strategy to see how the 2012 and 2014 reforms for the National Flood Insurance Program (NFIP) affected prices for those who should be most affected by the policies, that is the coastal counties in the state, in comparison to counties located away from the coast in the Piedmont and the Mountain regions of the state pre and post the policy changes. We predict that after the implementation of the Biggert-Waters reform which decreased the prices of homes for sale will fall and that this decrease may be less intense, but still decreasing, after the Homeowner Flood Insurance Affordability Act was implemented.

We obtained data on housing prices in each county of North Carolina through Zillow. The dependent variable i.e. housing prices are essentially the median list prices per year per county. Data on the control variables (population, unemployment, and poverty) was obtained using the Economic Data from the Census Data for North Carolina State and Counties from the University of North Carolina demographics open access database.

Using the data described, we find that the listed housing prices decreased by 2% after the implementation of the 2012 Biggert-Waters Reform and by 8% after the introduction of the 2014 Homeowners Flood Insurance Affordability Act in the coastal region versus the non-coastal regions. This implies that the government subsidies for flood insurance policies implicit in the lower rates that existed before the reforms were an amenity valued by homeowners in the coastal region and that when this amenity decreased, the housing prices decreased accordingly. These results encourage policy makers to design reforms which allow for homeowners on the coast to more accurately incorporate the risk of living near the coast into housing prices.