Effects of Flood Hazard on Property Prices in Cape Town, South Africa

In many cities in the Developing South, a growing number of households live in areas prone to flooding. Past research indicates that flood risk has a discount effect on property prices, an important determinant of municipal revenue. Estimates as to the portion of flood attenuation costs recoverable through property tax increments vary significantly. In this paper we investigate the impact of flood risk on residential property prices in Cape Town, South Africa. Using a hedonic price model to estimate the price discount associated with flood risk affecting 2,644 properties located within the 100-year floodplain, we find a discount of between 2.3 and 3.2 percent. Further, we examine flood mitigation projects proposed for two low-density suburbs, comparing project costs against the aggregate property tax increment expected over 50 years. Finding only a fraction of the project costs recoverable through tax increments, we conclude that factors other than land value capture also be considered as part of future project appraisals.