Floods do not sink prices, historical memory does: How flood risk impacts the Italian housing market

TL;DR

This study reveals that in Italy, repeated flood exposure, rather than immediate flood events, significantly lowers housing prices over time, influenced by buyers' experience and socioeconomic factors.

Contribution

First systematic analysis of flood risk impact on Italian housing prices, highlighting the role of repeated exposure and buyer heterogeneity in price dynamics.

Findings

Repeated floods lead to up to 4% price decline in affected areas.

Immediate flood events do not significantly affect home prices.

Buyer experience and income influence sensitivity to flood risk.

Abstract

Do home prices incorporate flood risk in the immediate aftermath of specific flood events, or is it the repeated exposure over the years that plays a more significant role? We address this question through the first systematic study of the Italian housing market, which is an ideal case study because it is highly exposed to floods, though unevenly distributed across the national territory. Using a novel dataset containing about 550,000 mortgage-financed transactions between 2016 and 2024, as well as hedonic regressions and a difference-in-difference design, we find that: (i) specific floods do not decrease home prices in areas at risk; (ii) the repeated exposure to floods in flood-prone areas leads to a price decline, up to 4\% in the most frequently flooded regions; (iii) responses are heterogeneous by buyers' income and age. Young buyers (with limited exposure to prior floods) do not obtain any price reduction for settling in risky areas, while experienced buyers do. At the same time, buyers who settle in risky areas have lower incomes than buyers in safe areas in the most affected regions. Our results emphasize the importance of cultural and institutional factors in understanding how flood risk affects the housing market and socioeconomic outcomes.