A study of 17.5 million users on the home listings portal Redfin paints a concerning picture for home sellers in flood-prone areas.
Buyers looking for homes among Redfin’s listings became substantially less likely to make offers on high-risk homes after gaining access to flood risk data on home listings, developed by the First Street Foundation.
The three-month, randomized, controlled trial saw the listing company’s “Flood Factor” flood-risk assessment tool included in listings seen by half the users involved, with the other half unable to see the tool.
Users who viewed homes with an average risk score of 8.5, denoting an extreme risk of flooding, prior to the study went on to bid on homes with an average score of 3.9, denoting a moderate risk, after gaining access to the flood risk data. By comparison, users who viewed homes with the same flood risk factor, but who did not get access to the flood risk data, continued to bid on those risky homes.
However, Redfin researchers cautioned that the behavior changes they observed only seemed to affect buyers who were already looking at homes with a severe risk of flooding, suggesting that buyers may only pay attention to flood risk if it’s substantial.
“We now have definitive evidence that the risks posed by climate change are affecting where Americans choose to live. Before Redfin’s experiment, that was just a hypothesis,” Redfin Chief Economist Daryl Fairweather said in a statement. “As more house hunters become aware of climate risk, homes in endangered areas will likely receive fewer offers, causing home values to fall. At the same time, we may see prices in lower-risk, inland areas rise as more Americans move there to avoid flooding.”
Giving buyers access to flood risk data also seemed to influence which homes buyers viewed, as well. Buyers who were viewing extremely at-risk homes, who then suddenly got access to flood risk data on home listings, shifted to looking at slightly less-risky homes, Redfin said. The effect increased over time, Redfin said, with buyers opting for homes with 7 percent less risk than the control group after one week and 27 percent less risk after nine or more weeks.
“Climate-risk data may start to have an even bigger impact on homebuyer decisions now that the housing market is slowing and tilting more in buyers’ favor,” Sebastian Sandoval-Olascoaga, the MIT researcher who co-conducted the experiment, said in a statement provided by Redfin. “Today’s buyers have more leeway to seek out the home features they really want. For some buyers that might mean considering only turnkey homes, and for others it might mean limiting their search to homes with minimal flood risk.”
Redfin conducted this experiment from Oct. 12, 2020 to Jan. 3, 2021 in partnership with researchers from University of Southern California, the National Bureau of Economic Research and Massachusetts Institute of Technology. Flood-risk scores came from First Street Foundation’s Flood Factor.
Prospective buyers in the southwest Florida metro of Cape Coral were the most likely to show concern about flood risk by clicking on a home listing’s “flood risk” section, followed by Houston and Baton Rouge, Louisiana.
Among states, Louisiana users were most likely to be concerned about flood risk, followed by those in South Carolina, Florida, Michigan and Connecticut.
Among other Northeast states, Maine, Vermont, New Jersey and Delaware were also in the top 10 states with buyers most likely to be concerned about flood risk despite Massachusetts’ coastal properties and some inland properties facing substantial flood risk..
Redfin researchers raised concerns that the observe buyer behavior might reinforce existing racial and economic disparities because formerly-redlined neighborhoods face higher flood risk.
“Home prices haven’t yet started to broadly plummet due to natural-disaster risk. That means communities that face the highest risk still have time to act,” Fairweather said in a statement. “If a homeowner thinks their property will lose value due to flood risk, they may want to relocate now to keep both themself and their finances safe. Unfortunately, that may mean passing on the risk to someone else. Governments can help prevent that by purchasing and demolishing at-risk homes, or subsidizing climate-resilient improvements. Upgrades like landscaping, flood walls and flood openings to direct water away from homes can help an at-risk property retain value.”
Debate is continuing to churn over whether federal regulators should evaluate banks and other mortgage lenders on their exposure to risk from climate change – which is expected to make flooding worse via severe storms and sea level rise.