Flood risk discounts in the Danish housing market

We investigate the effects of the risk of flooding and rising sea levels on the prices of single-family homes in Denmark. To that end, we combine data on the universe of housing transactions in Denmark since 1992 with rich data on the flood risk exposure of all Danish houses. Flood risks are substantial: between 0.9 and 1.2 per cent of Danish houses are at risk of flooding today, and nearly twice as many houses will be exposed to flood risk by 2071. Houses that are exposed to flood risk today are sold at a price discount of around 6 per cent. For your average house, that corresponds to a discount of around 100,000 DKK. Flood risk discounts vary over time: they increased temporarily after a severe flood in 1999, even in areas that were not affected by this particular flood. There is evidence of sea level rise pricing: houses that are not exposed to flood risk today, but will be exposed to flood risk in the future due to rising sea levels, are priced at a discount of 3-4 per cent.