Copious quantities of rain drenched southern British Columbia in November, breaking rainfall records in many communities. The resulting floods ravaged or destroyed numerous homes and businesses, causing billions of dollars in damage. While many will rebuild, others will consider relocating. But in recently inundated neighbourhoods, what are properties worth?
This week, the University of Waterloo’s Intact Centre on Climate Adaptation will publish a report casting welcome light. Its researchers studied five cities that suffered recent catastrophic floods: Grand Forks, B.C.; Gatineau, Toronto, Ottawa and Burlington, Ont. They found that homes in neighbourhoods that suffered catastrophic flooding experienced an average 8.2-per-cent reduction in selling price, compared with homes in nearby neighbourhoods unaffected by flooding. The study, which looked at the period six months before and after the flood, was funded in part by the Canada Mortgage and Housing Corporation and the Global Risk Institute. The Globe and Mail obtained an advance copy.
The idea that buyers might offer less for at-risk homes might seem obvious. However, little research has been conducted on the relationship between flood risk and real estate markets in Canada. It’s been studied more closely in the United States and Britain, but results have been contradictory.
Flooding has long been Canada’s costliest form of natural disaster, and climate change is expected to increase its frequency and severity. Already, about 10 per cent of the nation’s homes are estimated by the insurance industry to reside in high-risk areas, such as river floodplains. A host of projections show many coastal properties face obliteration from rising sea levels at some point. Even properties not built near water can be deemed high risk; in cities, many homes are exposed to flooding during heavy rainfall as storm sewers overflow and low-lying areas fill up. Buyers and sellers alike would benefit from more research examining how flood risks influence a home’s market value, or how long it may take to sell.
In an era where average home prices can rise 10 per cent or more in a single year, an 8.2-per-cent flooding discount might seem unremarkable. But consider that in December the average price of a Canadian home was $713,000. If such a home were located in a neighbourhood that recently flooded, the “flood discount” would be more than $58,000. That’s equivalent to leaving a brand new Lexus SUV in the driveway for the new owner.
To control for factors unrelated to flooding, Intact’s researchers compared selling prices of homes in flooded neighbourhoods with those from nearby “control” neighbourhoods with similar demographics that hadn’t flooded. Results between the five cities varied. In Gatineau, homes in flooded neighbourhoods sold for 17 per cent less than in the control neighbourhood. In Grand Forks, B.C., the difference was barely more 1 per cent.
Researchers found a 44-per-cent reduction in the number of houses listed for sale in flood-affected neighbourhoods. They speculated prospective sellers might not list their homes because they needed time to repair damage, expected a lower listing price, or perhaps were waiting for the stigma to pass.
The Intact researchers speculated that stigma might never dissipate in communities that flood regularly. They tested their suspicion in Fredericton, which suffers significant flooding almost every year, albeit typically in different neighbourhoods. There was no difference in selling prices on either side in the months before and after a flood in April, 2019, lending support to their hypothesis.
Many more questions remain unanswered. For instance, how much might prices recover a year later, once damage has been repaired, or five years on when memories of the flood have faded? What happens when a municipality updates flood hazard maps, placing more properties in designated hazard zones and imposing development restrictions?
For some Canadians, these matters are of more than academic interest.
Sisters Janet Hayes and Lori Lehne thought their parents’ three bedroom, 900-square-foot bungalow in Oakville, Ont., would sell quickly. The house they grew up in was unremarkable: they assumed buyers would tear down the 60-year-old home and build a much larger one. In March, 2018, the property fetched just more than $1.2 million.
But Joshua Creek, which flowed just steps from the lot’s rear, became a problem. The buyer backed out after learning that the property fell within a designated flood-hazard area, which meant a maximum of 500 square feet could be added to the home’s current footprint. A couple of months later, a new buyer paid $900,000.
“It financially hurt my parents to the tune of $300,000,” Ms. Hayes said.
Krystine McInnes bought a 50-acre organic farm in Cawston, B.C.‚ in 2015. The Similkameen River has flooded it four times since 2018, causing extensive damage each time. (Before that, the last time it flooded was in 1971, she said.) She can no longer get flood insurance for the property, and regards it as unsellable.
Relying on the available research, it’s difficult to know how typical such experiences are – and further insight could be a long time coming. Blair Feltmate, head of the Intact Centre, said his buyers and sellers alike would benefit from more research examining how flood risks influence a home’s market value, or how long it takes to sell. Intact’s request for data was rebuffed by a major national real estate body, so it instead built relationships with individual real estate brokers in the affected communities.
“Analyzing the data was easy,” he said. “Getting the data was hard.”
Graham Tobin, who retired as a professor in the University of South Florida’s geosciences school three years ago, began studying flooding’s impact on real estate prices in the United States in the 1980s. Results from previous studies were “all over the place,” he recalled. “Floods decreased land values, floods had no effect on land values, and floods increased land values.”
Work since then, by him and many others, shed more light on factors that might explain the variance. Flood risk appears to matter far less in hot real estate markets, for instance. And some neighbourhoods are protected by dikes or other infrastructure, which can make homes appear safer than they actually are – a phenomenon referred to as the “levy effect.”
Awareness almost certainly matters, though its role is poorly understood. Many communities in Canada lack flood maps; those that do exist are often woefully out of date, inaccessible, and may be inscrutable to the layman. In June, the BC Real Estate Association released a survey of 109 municipalities and First Nations; only 38.5 per cent of respondent communities had created or updated floodplain maps since 2015. Of those, slightly more than half (57 per cent) made the maps publicly available.
Jason Thistlethwaite, a professor at the University of Waterloo’s environment department, said that whereas other countries require real estate sellers to disclose flood hazards, in Canada there are sizable gaps, and rules vary between provinces. (In Ontario, for example, a seller must disclose previous flood damage only if the buyer requests it.) Yet even long-time residents are often oblivious: A 2020 survey of 2,300 Canadians by Prof. Thistlethwaite and his colleagues found that just 6 per cent living in designated flood-risk areas actually knew that.
For buyers, flood risk is often eclipsed by other considerations, such as proximity and quality of schools, the home’s age, or recent renovations, he added. “When people are looking at properties, flood risk is going to be, I don’t know, seventh or eighth on the list,” he said.
With so many factors in play, Prof. Tobin said, flood risk’s impact on real estate markets isn’t much clearer now than when he began his work. “And unless you consider many of them, you’re not going to get a true picture,” he said.
How B.C.’s real estate markets were affected by November floods is unclear. Brendon Ogmundson, chief economist of the BC Real Estate Association, said no impact on property prices is apparent in aggregated data.
“Abbotsford, where the most serious flooding occurred, still recorded its second-highest November and third-highest December on record for home sales,” he said. Sales activity dropped in Chilliwack, which had been largely cut off during the floods, by 17 per cent between October and December. But “there appears to be no impact on prices from the flooding,” he said, “as average prices in both the Abbotsford and Chilliwack markets were up substantially from October to December, 2021.”
Dr. Feltmate is confident about one thing. He pointed to recent introduction of training about managing flood risks for home inspectors, mortgage brokers and realtors. And he expects that real estate listings will soon include compulsory information on flood risk or preparedness, such as presence of backwater valves. Such changes will lead Canadians to consider flood risk more carefully, and the resulting impacts on real estate activity will therefore endure.
“I would bet money on this,” Dr. Feltmate said. “It is simply a matter of time.”
This article is part of No Safe Place, a year-long focus on climate adaptation in the wake of a string of climate-related disasters in Western Canada.