Housing
William Cheung asks why New Zealanders seem to be neglecting natural hazards when buying a house
Comment: Flooding events have impacted thousands of homes across Aotearoa New Zealand. However, such events have not resulted in lasting property price decreases – even in many flood-prone neighbourhoods.
Are people really neglecting the risk of natural hazards when looking to achieve their Kiwi dream?
Research I recently carried out with my colleague Associate Professor Edward Yiu, titled Public perception of flood hazards in the housing market: a revealed preference study of affect heuristics and availability heuristics, suggests that individuals will solely sometimes pay much less for a property if a flooding occasion has occurred just lately.
Based on property transactions within the Auckland area, the examine demonstrated that after some extreme flooding occasions, property costs in these flood-prone areas had a short-lived lower within the first six months after controlling for coastal facilities; nevertheless, such a reduction fades over time.
Our analysis additionally revealed that almost all residence consumers care extra about coastal facilities than some intangible threat of flooding within the distant future, notably when the knowledge on flood dangers will not be clearly obtainable.
It’s obvious that coastal facilities resembling a surprising water view from a flood-prone property can generate a sense of affection or the so-called “affect heuristic” that leads a possible homebuyer to overvalue a home worth. Having stated that, individuals are not completely ignoring local weather change-related dangers resembling sea stage rise, and more and more frequent and catastrophic flooding occasions ought to proceed to boost individuals’s issues.
What can we be taught from these patterns of public notion of flood dangers?
Because public notion of flood dangers can range considerably in several areas and at completely different occasions, resembling from a latest flood occasion and/or the co-existence of coastal facilities, then a extra clear disclosure of flood threat data to potential consumers on the early stage of a property transaction is essential.
Although homebuyers obtain a Land Information Memorandum (LIM) report that incorporates flood zone data concerning the property, it’s nonetheless removed from enough. The essential difficulty right here is how to make sure homebuyers are conscious of the potential impression of flooding dangers of their residence purchases.
Provided the issue is related to the cognitive bias of individuals in perceiving the distant future threat of flooding, then a ‘nudge’ in the direction of having flood threat labelling within the property gross sales data may assist.
Indeed, sellers have an obligation to reveal any earlier flood occasions which have affected the property in the event that they know of any. However, the disclosure is made solely on the request of residence consumers.
If the extent of flood dangers could possibly be introduced in a format like a ‘flood score’, which was required to be displayed within the gross sales supplies, this may grow to be a chunk of available data to potential homebuyers.
The thought will not be one thing new, and as with the star score for a lot of meals merchandise within the grocery store, how at-risk a property is to flooding can also be one thing that ought to be obtainable in a transparent and simply digestible format.