Flood Influence & Real Estate Development

Insurance markets are a means by which societies cope with the rising frequency and intensity of natural disasters, particularly floods. By influencing perceptions of flood risk, as well as the costs of building and maintaining real property, these markets create a unique set of financial incentives that inform individual decisions related to the built environment. This thesis will examine the links between flood insurance markets in the United States and patterns of urban development along the periphery of floodplains, as delineated in the official Flood Insurance Rate Maps (FIRMs) produced by the federal government. These maps—and the insurance costs that they help determine—act as economic signals that influence the decisions of individuals and firms. Spatiotemporal analysis of real estate tax appraisal data compiled for Harris County, Texas, finds some evidence of heightened building activity within the “marginal 100-year” floodplain, suggesting that an incentive exists to build just outside the floodplain boundary, even though, empirically, it is a poor predictor of the actuarial risk of flooding.