Date and Time
Location
157 Hosler Building
The National Flood Insurance Program suffers from insolvency partially attributable to premium subsidies for older, vulnerable properties. Efforts to phase out subsidies are slow, with policymakers and constituents concerned over the impacts of subsidy removal on housing markets. Using an exogenous break in subsidy eligibility specified in the original legislation, we estimate nationwide and metro region-specific difference-in-differences models to identify the capitalization of subsidy eligibility in home values. Given the well-known finding that flood insurance uptake is imperfect in 100-year floodplains and in accordance with the predictions of a hedonic model with asymmetric information, we find a rate of capitalization within the bounds of outcomes resulting from fully informed market participants and from buyers and sellers with heterogeneous awareness, averaging approximately $12,000 per eligible residence. We further find that during a temporary removal of subsidies in 2012-2014, the capitalization of subsidies diminished, providing additional evidence of our causal mechanism.