Flood shocks, heterogeneous risk exposure, and housing market dynamics in China

Abstract

This paper analyzes the economic consequences of flood shocks on housing markets in China. By combining detailed housing transaction records with granular geospatial-environmental information, we document robust evidence of heterogeneous impacts of flooding within local housing markets. Specifically, transaction prices and volumes decline in low-lying areas, while prices increase but volumes remain stable in high-elevation areas. These asymmetric responses are largely attributable to the risk-averse location choices of buyers and the shifts in the geographic composition of sellers’ listings. Furthermore, we find evidence of spillovers, with unmet local demand flowing into adjacent safer markets. A conservative welfare estimation indicates that flood-induced welfare losses from housing markets are considerable—18 times greater than the direct economic damages—and are borne almost entirely by buyers. Our findings also highlight the crucial role of government intervention in mitigating post-disaster market inefficiencies and facilitating a more balanced spatial distribution of welfare.