The impact of flooding on real estate transactions in densely populated areas: Evidence from the 2019 Typhoon Hagibis in Japan

This study examines the impact of flooding on real estate transactions in an urban area using the flooding caused by Typhoon Hagibis, which hit Japan in October 2019, as a natural experiment. Applying the difference-in-differences method, we find that the contract and offer prices of properties in flooded areas declined by about 6.0% and 5.5% on average, respectively. These price drops indicate an approximately 0.5 percentage point rise in the discount rate, which is defined as the percentage change from the offer to contract prices. Regarding apartment transactions, we show that the negative effects are significant for higher floors but insignificant for lower floors. This suggests the possibility that buyers have become more aware that higher floors are also vulnerable to flooding, given the flood-associated risks of power and water outages. The findings also reveal that the negative effects of flooding on detached houses are more serious and emerge more slowly than those on apartments. • We examine how the 2019 flood caused by Typhoon Hagibis impacted the housing market. • In flooded areas, the contract price declined by about 6.0% on average. • The price drop is partly attributed to a change in the balance of bargaining power. • For apartments, the negative effect is significant only for higher floors. • For detached houses, the negative effect is quantitatively more severe.