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The impact of flood insurance on residential property prices: Towards a new theoretical framework for the United Kingdom market

The impact of flood insurance on residential property prices: Towards a new theoretical framework... The supposition that the availability and cost of insurance will have an effect on house prices is often accepted as fact. However the mechanism for this supposed impact has not been clearly articulated and the hypothesis is far from proven in the UK market. Measurement of the effect of insurance is complicated by the fact that the parties are acting in the presence of incomplete information and that insurance costs can act as a proxy for other value drivers such as flood risk. Models useful in other countries cannot be applied sensibly to the UK market because of the unique properties of the UK insurance regime. Novel hypotheses are suggested for the three principal ways in which the availability and cost of insurance might influence the prospective property transfer. A method for testing one of these hypotheses is proposed using a quasi‐experimental approach with the aim of determining whether a relationship between insurance cost and house price does indeed exist. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Management of Property and Construction Emerald Publishing

The impact of flood insurance on residential property prices: Towards a new theoretical framework for the United Kingdom market

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Publisher
Emerald Publishing
Copyright
Copyright © 2007 Emerald Group Publishing Limited. All rights reserved.
ISSN
1366-4387
DOI
10.1108/13664380780001099
Publisher site
See Article on Publisher Site

Abstract

The supposition that the availability and cost of insurance will have an effect on house prices is often accepted as fact. However the mechanism for this supposed impact has not been clearly articulated and the hypothesis is far from proven in the UK market. Measurement of the effect of insurance is complicated by the fact that the parties are acting in the presence of incomplete information and that insurance costs can act as a proxy for other value drivers such as flood risk. Models useful in other countries cannot be applied sensibly to the UK market because of the unique properties of the UK insurance regime. Novel hypotheses are suggested for the three principal ways in which the availability and cost of insurance might influence the prospective property transfer. A method for testing one of these hypotheses is proposed using a quasi‐experimental approach with the aim of determining whether a relationship between insurance cost and house price does indeed exist.

Journal

Journal of Financial Management of Property and ConstructionEmerald Publishing

Published: Dec 1, 2007

Keywords: Flood insurance; Property price; Flood risk

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