Does Flood Insurance Help Neighborhoods Recover from Flooding?

Abstract

This study explores the impact of flood insurance on post-flooding neighborhood recovery. Using a shift-share instrumental variable approach, we analyze flood insurance claims’ influence on housing prices after Hurricane Harvey in Houston. A $1,000 rise in claims per single-family household boosts post-flooding housing prices in the neighborhood by 1.2%, roughly $3,064 based on median housing values. Consequently, while median homeowners in affected areas see a 2% decline in values post-flood, those in neighborhoods with flood insurance claims at the 75th percentile witness no such decrease. Moreover, uninsured homes nearby benefit from positive spillover effects. Disadvantaged neighborhoods experience greater benefits from flood insurance claims. We also find suggestive evidence that well-insured tracts have fewer foreclosed properties, more home remodeling, and higher listing prices post-Harvey.