Can nature-based climate change adaptation measures benefit the Dutch housing market?

News - 12 January 2023 - Webredactie Communication

The Netherlands needs to account for climate-driven flood risks when planning new housing advises the Deltaprogramma: where and how we build houses and what governments and homeowners can do to adapt to the increasing flood risks. Nature-based solutions (NbS) are a cornerstone of climate change adaptation worldwide. Despite that, the uptake and scaling up of these solutions remains limited due to a lack of evidence on their long-term performance, economic impacts and social acceptance. Research done by TU Delft scientists Asli Mutlu and Prof. dr. Tatiana Filatova, in collaboration with Dr. Debraj Roy (UvA) now shows how much home values can grow with nature-based climate change adaptation measures, and how they change after homeowners experience a flood. The results were published in the scientific journal Ecological Economics.

Asli Mutlu: ‘Nature-based solutions play a key role in climate change adaptation by managing the adverse impacts of climate change. Yet, evidence on their economic benefits is scarce. Especially since the provided environmental amenities such as extended green area for riverside walk and space for ecosystems and biodiversity in addition to flood safety usually spatially correlate with climate-induced hazards (such as floods). We used a market-based valuation approach to quantify whether NbS and floods make any difference for housing prices in the Netherlands.’ ‘Our team for the first time shows how the negative effect of floods on home values in the Netherlands changes over time after a hazard. Accounting for how climate change and adaptation actions may impact the most valuable family possession – own property – is essential, both for new and existing housing where innovative and attractive forms of climate change adaptation are urgently needed’, highlights Tatiana Filatova.

The case of the province of Limburg

The researchers analyzed 68,247 single-family house transaction data over 30 years between 1990 and 2020 in the Limburg Province. The research estimates Dutch homeowners’ willingness-to-pay for NbS amenities - such as flood safety and improved environmental quality-, while exploring the negative impact of the Meuse River floods in 1993 and 1995.

‘The findings reveal that houses located in flood-prone areas along the Meuse River did capture the negative impacts of flood risk’, says Mutlu. Before the floods of 1993 and 1995, flood-prone houses were on average 5.6% cheaper (or €12,753) compared to a similar house that was outside the flood-prone area. The price discount increased to 10.9% (or €24,691) immediately after the river floods of 1993-1995, indicating that prices for residential homes did capitalize the shift in individual risk awareness and associated losses. Yet, the effect was only temporary. ‘We found that the negative impact of floods on home prices diminishes over time and eventually disappears in 9-12 years. This is a common finding in the US data, but it was for the first time registered in the Netherlands.’ This period of flood risk discount disappearance coincides with the implementation of the largest and oldest NbS intervention in the Netherlands – the Grensmaas that offered extra room for the river. Since the NbS project offers flood protection and contributes to nature development in flood-prone areas, it is likely to positively impact house prices in the surrounding area. In other words, improvements in the environmental quality in flood-prone areas could remove the flood risk discount on house prices.

Economic benefits

Furthermore, the researchers found that nature-based solutions amenities provide a price premium of up to 15% (or €33,687) on houses nearby the water that are directly exposed to flood risk, by improving flood safety and providing nature amenities. This implies that NbS generate economic co-benefits for individual homeowners and local municipalities, besides flood protection alone. Filatova: ‘Nearby houses have the benefit of easily accessing the water amenities, think of river view, water recreation or a walk along the green riverbank. They have reduced risk of flooding and provide space for biodiversity, which is a plus. Combining all three benefits, we conclude that NbS improves prices of houses nearby the river’. This evidence of the evolving flood risk discount and the stable NbS premium for individual homeowners can support the economic feasibility and wide acceptability of NbS climate change adaptations.

Solution to adapt to climate change

The findings suggest that the housing market in the flood zone did experience a decrease in prices compared to safe areas in the near past. However, in the absence of floods, homeowners tend to forget the flood risk, which is worrisome given the increasing probabilities and severity of floods exacerbated by climate change. These results could be useful for policymakers and private investors such as mortgage providers, insurances, as well as homeowners who are vulnerable to financial instability of housing markets in climate-sensitive areas. The estimated values for the NbS amenities studied here gives insights to public and private investors on the economic viability of NbS and can help them become more widely acceptable as solution to adapt to climate change.

More information

The full article in Ecological Economics is available online.

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