Seunghoon Lee, UChicago

Abstract:
The capacity for a government policy to enhance or deter adaptation to natural disasters hinges critically on how individuals respond to it. In this paper, I study how households respond to a policy mandating the disclosure of flood risk during property transactions, and the broader implications of these responses for the housing market and flood damage. By exploiting the staggered adoption of the statutory Home Seller Disclosure Requirement (HSDR) on flood risk across different states, I show that this policy reduces the average price of properties located in a high flood risk area by 6 percent. This effect is driven by a combination of flood insurance premium capitalization and population migration. Further, I construct a novel and objective measure of flood history for each community using a method from hydrology and estimate the effect of the HSDR policy on flood damage using the same variation. I find that the policy substantially reduces damage from small to moderate floods in the treated communities.