The impact of floodplain ordinances on residential real estate values in the City of Winnipeg

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Jarolim, Ladislav
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Flood hazard is a growing problem throughout Canada. Traditionally, structural measures (such as dams, dykes, etc.) have been adopted to cope with a flood problem. In 1976, the Flood Damage Reduction Agreement (FDR) was signed between the Federal Government and the Province of Manitoba. Besides structural measures, this document has also emphasized nonstructural measures (such as floodproofing, zoning, etc.). On the basis of this Agreement the City of Winnipeg adopted restrictions on economic development (in the form of building codes) in flood hazard areas of Winnipeg. It is often hypothesized that nonstructural measures depress property values in designated areas through the deprivation of property rights to manage one's property freely. The objective of this study was to test whether flood plain regulations have a negative impact on residental real estate values in the City of Winnipeg. Unfortunately, in this empirical test it was not possible to separate effects of flood plain regulations from effects of flood hazard itself (all flood plains are regulated in Winnipeg). A hedonic price model of residential property values was employed to investiate the hypothesized relationship. Data for the study were collected from the multiple listing of the Winnpeg Real Estate Board and consisted of actual transactions on single detached family houses sold in 1984. Having encountered a problem of heteroskedasticity, the original sample of 172 observations was broken into three subsamples, each representing one particular area of Winnipeg (Fort Richmond, Elm Park and St. Norbert). It has been found that houses located in a designated area of Fort Richmond are valued more than comparable houses located off a designated area. The same result has been found for the Elm Park area but, this time, the difference was not statistically significant. The third sample, St. Norbert, did not satisfy all the assumptions of the estimation technique (OLS) and therefore the results could not be reported with confidence. Overall, it has been concluded that flood hazard and flood plain regulations do not have negative impact on residential real estate values in the City of Winnipeg. It has been suggested that possible causes explaining this finding may be: low probability of flooding in Winnipeg (once in 160 year periods); low restrictive nature of flood plain regulations; designated properties are often river properties which may have higher esthetic value, and therefore a higher price, than off the river located properties; the positive impact of structural measures put in place after the 1950 flood overwhelm the negative impact of flood plain ordinances.