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Attracted by affordable prices and a lovely river view? New research indicates that homes in flood zones are approximately 10% less expensive than properties in nearby areas. However, the lower price may not justify the increased risk and could result in substantial long-term insurance expenses for buyers.
Researchers analyzed property sales records from the Richmond area near Sydney, along with flood maps from 2019 and 2023 for the region. Their study revealed a price reduction of 10.8% in the AEP 100 flood zone, 4.4% in the AEP 500 flood zone, and no reduction in the AEP 1000 flood zone.
AEP, or “Annual Exceedance Probability,” indicates the annual likelihood of flooding occurring in a specific area. An AEP of 100 corresponds to a 1% chance, or flooding that occurs once in a century, while AEP 500 presents a one-in-500-year risk, and AEP 1000 indicates a one-in-1000-year risk.
Lead researcher Associate Professor Song Shi from the School of Built Environment at the University of Technology Sydney (UTS) stated that digital flood risk maps significantly influence people’s understanding of flood threats. Yet, low-probability risks are often overlooked, and these maps can be misinterpreted.
“Home buyers may mistakenly believe that a ‘1-in-100-year flood risk’ signifies flooding will happen only once every 100 years. In reality, it means there’s a 1% chance of such flooding occurring each year,” he explained.
“The likelihood of experiencing at least one flood during an 80-year lifespan is 55% for a 1-in-100-year flood and 15% for a 1-in-500-year flood. The probability of facing such catastrophic floods over a lifetime is notably greater than many people realize.”
The study indicates that individuals often overlook flood risks beyond the AEP 500 flood risk zone. This oversight can be perilous, especially as severe rainfall events, similar to those recently seen in Spain that caused numerous fatalities, are becoming more frequent due to climate change.
“In Australia, over 10% of homes are located in flood zones. Flooding from heavy rainfall and overflowing rivers ranks as the most common and expensive natural disaster,” noted Associate Professor Shi.
“Increasingly, residents are leveraging digital flood maps to comprehend their flood risks and prepare for extreme weather events. However, our research indicates that after reaching a certain point, people tend to disregard these risks, which can result in inadequate flood preparedness.”
The study, titled ‘Cognitive limits of perceived flood risk on residential property values,’ with co-authors Dr. Mustapha Bangura and Associate Professor Sumita Ghosh from UTS, was published recently in the International Journal of Disaster Risk Reduction.
The researchers identified that insuring a home located in a flood zone imposes a considerable financial strain. In Richmond, median-priced residences within the AEP 100 zone could face annual flood insurance premiums as high as $4,606, in contrast to comparable homes in areas without flood risk.
Properties at risk of flooding are often overstated in value, particularly in coastal regions, according to the researchers, as the discounts in property prices do not adequately offset the higher insurance costs incurred.
As climate change continues to alter weather patterns, understanding flooding risks is increasingly vital for homebuyers seeking well-informed decisions and for policymakers focused on protecting communities and mitigating impacts on real estate markets.
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