Asymmetric information provision and flood risk salience

Abstract

• This study examines how climate risk information, provided through communication campaigns and real flood events, influences housing prices and residents' adaptation behavior in the Netherlands. • Empirical evidence shows that housing price premiums for waterfront properties decreased by 3.4 % after a significant flood event, equating to €123.8–€194.4 per square meter for median houses. • Transactions between local buyers and sellers with uneven access to flood risk information result in prolonged time-on-market and larger listing-to-sale price discounts. • Higher-educated, risk-averse, and smaller-sized families are more likely to relocate from flood-prone areas when informed about flood risks. • Effective risk communication must incorporate tailored, clear, and engaging strategies to maintain long-term awareness of flood risks and foster proactive adaptation behaviors. • Without continuous reinforcement, risk perceptions fade over time, emphasizing the need for sustained, engaging interventions to enhance climate risk preparedness. This paper examines the impact of information provision on the capitalization of flood risk in the housing market. We exploit a climate risk disclosure program and a subsequent flooding event in the Netherlands, using a difference-in-differences framework. The results indicate that annual flood risk communication letters sent to residents in flood-prone areas have minimal impact on housing prices. In contrast, a small-scale flood event triggers a 3.4 % decline in house prices, demonstrating the effectiveness of direct experience in influencing price adjustments. This price effect is short-lived and is observed only among local buyers who have access to both the letters and firsthand flood experience, while non-local buyers remain unresponsive. We also observe an increase in the time on market and listing-to-sales ratio among local buyers, alongside a rise in the renter-occupied household ratio following flood risk information provision. Small-sized, high-educated, and risk-averse families tend to relocate from the high-risk area. The results in this paper provide insights for policymakers grappling with how to reduce information asymmetry in housing markets in the face of increasing climate risks.