The effects of flood zone designations on land development

Abstract

In 2017, Hurricane Harvey hit Harris County, Texas and caused devastating flood damages. These flood damages were exacerbated by a rapid land development. This paper estimates the impact of the Federal Emergency Management Agency (FEMA) high risk flood zone designation, the Special Flood Hazard Area (SFHA), on land development. FEMA's flood maps convey information to homeowners regarding their property's flood risk and requires flood insurance for most properties in the SFHA. Using a spatial regression discontinuity design I find evidence of a 64% decrease in land development just inside of the SFHA boundary line. These results suggest FEMA can significantly impact the allocation of land development with the SFHA designation. Currently, FEMA underestimates flood risk, accurately assessing flood risk can help better prepare homeowners for future flooding events and allocate future land development in a more socially optimal way.