NY Fed, Report: Moving Out of a Flood Zone? That May Be Risky!

“Our findings indicate that flood mapping is associated with higher borrower income in regions that are designated a special flood hazard zone. This is likely a mechanical response to the necessity of paying for relatively expensive insurance. However, we also find that applicant income in neighboring regions is lower than in mapped regions, despite these regions often being equally risky. Moreover, changes to flood maps cause changes in the pool of applicants in mapped and neighboring regions, indicating that this is a response to the mapping itself. These results suggest that flood zone maps may cluster poorer households into risky regions that are (as yet) unmapped. This represents a considerable risk as these (uninsured) households may be economically less able to deal with the negative consequences of a disastrous flood.”