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Flood Risk Perception and its Impact on Land Prices in Japan

July 28, 2022
Yoshiyasu Koide*1
Kenji Nishizaki*2
Nao Sudo*3


This paper estimates how flood risk perception affects land prices by making use of the granular geographical information of land prices, flood events collected in the Flood Statistics, and of flood risk captured in hazard maps in Japan. The estimates are conducted through two approaches, the hedonic approach and local projection, for the sampled sites that are selected from the viewpoint of avoiding potential omitted variable bias. Our main findings are threefold: (a) hazard map information affects land prices in a statistically significant manner. The effect is accompanied by a lag and its size varies depending on land use. (b) In addition to hazard map information, past flooding experiences affect land prices, suggesting the importance of the role played by the subjective flood risk perception formed through past flooding experiences. Indeed, in areas where large-scale flooding has occurred frequently in the past, hazard map information is reflected in the level of land prices to a greater degree and land prices are less susceptible to changes in hazard map information. (c) The estimated impact of flood risk on land prices based on the two approaches does not deviate significantly from the alternative measure of the impact of flood risk on land prices computed using the actual flood damage. However, the differences between the estimated impact and the alternative measure may become large for a certain type of flood risk and land use. Our results suggest that, in addition to the objective flood risk contained in, for example, hazard map, subjective perceptions of flood risk, such as those reflected in past flooding experiences, may also be important in land price formation.

JEL classification
Q54; R30

Flood; Hazard maps; Land price; Hedonic approach; Local projection

The authors are grateful to the Ministry of Land, Infrastructure and Transport, Chihiro Shimizu, Jiro Yoshida, Koichiro Suzuki, Koji Nakamura, Sachio Muto, and colleagues at the Bank of Japan for comments and discussions. Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan.

  1. *1Financial System and Bank Examination Department, Bank of Japan
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  2. *2Financial System and Bank Examination Department, Bank of Japan
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  3. *3Institute for Monetary and Economic Studies, Bank of Japan
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