This section of the dissertation aims to establish the current extent of the flood risk problem in the UK, its causes, whether and to what extent flood risk in the UK affects the value of property within it and the catalysts behind any affects. This is achieved by the review and appraisal of literature and subject matter relevant to these issues.
The risk of flooding has been ever present for buildings constructed in coastal areas as well as on the banks of rivers and other watercourses. This issue is no secret with any flood event being greatly publicised in the media and recorded in government documents, yet not only do the buildings affected by flooding remain in place and in use, further development of these "at risk" areas is ever present. The Easter floods that struck the Midlands and East Anglia in 1997 claimed 5 lives as well as anywhere between 300 million (ABI, 1998) and 400 million (Planning applications, 2001) pounds. On top of this the government plans to spend "£161 million maintaining existing flood defences and £270 million building new and improved ones" in 2010/11 (Environmental agency, 2010). However it would appear that the benefits, both material and financial of developing in these areas outweigh the losses and costs experienced with flood events.
Flooding is well known as one of the most devastating and costly natural disasters experienced in the UK (Handmer, 1987, Purseglove, 1988). The current extent of the problem is heavily publicized and variations of the data can be sourced from different areas on both a national and local scale. This information most popularly manifests itself as flood mapping (1) however this is as "not an exact science" (2). With respects to numbers of properties currently at risk the issue is subject to some debate. The environment agency's publications on flood risk assessment address England and Wales separately and in 2009 released the following statements.
"Environment Agency Wales' 2008 National Flood Risk Assessment shows there are 220,000 properties at risk of flooding from rivers and the sea in Wales. Our preliminary assessment of surface water flood risk also suggests that 97,000 of these are also susceptible to surface water flooding with a further 137,000 properties susceptible to surface water flooding alone. In all, around 357,000 properties in Wales, or one in six properties, are at risk of flooding.
(Flooding in Wales: A national assessment of flood risk, 2009)
The Environment Agency's 2008 National Flood Risk Assessment shows there are 2.4 million properties at risk of flooding from rivers and the sea in England. Our preliminary assessment of surface water flood risk also suggests that one million of these are also susceptible to surface water flooding with a further 2.8 million properties susceptible to surface water flooding alone. In all, around 5.2 million properties in England, or one in six properties, are at risk of flooding.
(Flooding in England: A national assessment of flood risk, 2009)"
In 2005 the ABI (Association of British Insures) put the figure at around 4% of the total property stock of 26 million but in light of the 2007 summer floods increased this figure by between 500,000 and 700,000 (ABI, 2009). The Office of the Deputy Prime Ministers also released its figures in 2002 saying "About 7% of the UK is likely to flood at least once every 100 years from rivers" and "about 1.7 million homes and 130,000 commercial properties worth over £200 billion are at risk from river or coastal flooding in England alone" (ODPM, 2002) Such a range of conflicting figures coupled with ever changing influences makes it difficult to get a handle on the actual severity of the situation.
The causes of flooding are no secret either and have been a source of constant study for many years. The UK government is all too aware of the situation spending £650 million in 2008-09 on flood defences (DEFRA, 2008) which are designed with these causes in mind. According to the environment agency there are five common causes of flooding in the UK all of which impact on the built environment. The causes are highlighted in their 2009 flood risk assessment.
"â€¢ River flooding that occurs when a watercourse cannot cope with the water draining into it from the surrounding land. This can happen, for example, when heavy rain falls on an already waterlogged catchment.
â€¢ Coastal flooding that results from a combination of high tides and stormy conditions. If low atmospheric pressure coincides with a high tide, a tidal surge may happen which can cause serious flooding.
â€¢ Surface water flooding which occurs when heavy rainfall overwhelms the drainage capacity of the local area. It is difficult to predict and pinpoint much more so than river or coastal flooding.
â€¢ Sewer flooding that occurs when sewers are overwhelmed by heavy rainfall or when they become blocked. The likelihood of flooding depends on the capacity of the local sewerage system. Land and property can be flooded with water contaminated with raw sewage as a result. Rivers can also become polluted by sewer overflows.
â€¢ Groundwater flooding that occurs when water levels in the ground rise above surface levels. It is most likely to occur in areas underlain by permeable rocks, called aquifers. These can be extensive, regional aquifers, such as chalk or sandstone, or may be more local sand or river gravels in valley bottoms underlain by less permeable rocks."
(Flooding in England: A national assessment of flood risk, 2009, 7)
Whilst these causes go undisputed, the environmental agency as well as other organizations (RICS et al, 2004 and 2009; McDowall, 2006; Wordsworth et al, 2005) share the opinion that, in relation to the flooding of property, the problem is worsening. This increase in flooding has been greatly publicized in recent years both in the media, (Gray, Daily telegraph, 2009) and by government papers. The Office of the Deputy Prime Minister published a paper as early as 2003 commenting on the problem,
"Despite the long history of flooding in the UK, experience in recent years suggests that the situation is getting worse. Changes in land and river management, development in floodplains and flood risk areas and variations in the intensity of rainfall may have all contributed to the severity of flood events and their impacts......
And goes on to say,
... There is also growing evidence that our climate is changing because of pollution and that this changing climate will increase the likelihood of flooding". (ODPM, Interim guidance for improving the flood resistance of domestic and small business properties, 2003, 11) (3)
From this information it would appear that the catalysts behind the increase are twofold,
* The global and well documented issue of climate change is causing ever higher rainfall which is not only increasing the frequency of flooding in know flood risk areas but also widening its area of effect.
* The continued development of flood risk areas across the country. This not only puts the newly developed area at risk but also impacts negatively on the flooding risk both up and downstream.
Climate change is considered to be one of the greatest threats to our planet but to what extent it compounds the problem of flood risk has also been subject to much study. However much like the state of the current flood risk problem, a general consensus has not yet been reached upon as to the extent to which climate change adds to flood risk, both globally and in the UK. Looking back at archived information from the met office showing "rainfall anomalies" or "rainfall increases" over the last 10 or 20 years can go some way to ascertaining what impact climate change may be having but in no way is it definitive. Trying to measure something like flooding against something that is in essence immeasurable like climate change leaves any report into the issue open for much speculation and debate.
(Met office, 2009)
Whilst the flood events of summer 2007 can be clearly related to the graph above it is also apparent that there are months when regional rainfall is less than average. This uncertainty is mimicked on a global scale; research results published in the Scientific Journal Nature estimated that human activity that contributes to climate change was
"likely to have led to a 62mm increase in the annual precipitation trend over the past century over land areas located 40-70 degrees North, which includes Canada, northern Europe and Russia".
However, Dr Nathan Gillett makes it clear that
"While our study shows a human influence on rainfall at the global scale, the role of human influence in the UK flooding remains uncertain"
(Scientific Journal Nature, Volume 448 number 7152, July 2007)
To add further confusion to the situation some organisations suggest that an increase in rainfall shouldn't be assessed over an annual period but over seasonal averages. A 2001 RICS Rural Faculty Report on flooding puts forward this idea,
This opinion however is not shared by all. In a BBC news report titled "wetter winters increase flood risk" Dr Tim Osborn, of the Climatic Research Unit, University of East Anglia (UEA) did note a increase in winter rain intensity
"We're 50-60% likelier than we were in 1960 to get five or more days in a row of heavy winter rain"
..But goes on to say
"The most obvious conclusion from our findings is that we've vindicated the climate models, and yet there's something else at work as well, perhaps a long-term natural trend."
Whilst most studies conclude that flooding in the UK is worsening the extent to which climate change is contributing is far from clear. To this end using climate change as a way to predict future flooding events and thus use it for risk assessments for insurance purposes is not feasible.
Although it is difficult to get a precise handle on the current and future impact of flooding in the UK it is a definite problem none the less and with the ongoing development of "at risk" areas the number of people affected can only increase. It can be argued that although flooding is a natural phenomenon and therefore the root of the problem i.e. rainfall, is somewhat out of human control (aside from Co2 induced climate change) the only way it can manifest itself as a hazard is by human interaction and development of the areas at risk. Essentially humans are putting themselves in harm's way.
This mechanism is highlighted by the "source-pathway-receptor" modal (Institute of civil engineers, 2001). What this mechanism suggests is that, in the case of flooding, the Source would be the rainfall, the pathway would be the route which the flood water takes and the receptor would be the people and property it affects. Given that the source and the receptor are a certainty there is little that human influence can do to change those however the interaction and development of the pathway has a knock on effect. Firstly the development is in a "at risk" area so immediately increases the number of receptors, secondly the new development restricts the normal flow of the flood water causing it to "back up" and increase flooding up stream.
"In times of flood, a river can flow not only through its normal channel but also along its floodplains. Any constriction of the natural flow path can restrict flow, 'back-up' the river and lead to increased flood levels upstream."
Lastly, the rain water that would normally be held or absorbed by the flood plain is very quickly channelled through manmade culverts and drains back into the river causing increased flooding downstream.
"...impermeable materials significantly reduce this ability to absorb rainfall, and will lead to increased storm water runoff. Large developments, or a series of small developments, including those away from major rivers, can therefore increase river flows and the risk of flooding to land and property downstream".
This issue is globally recognised with many counties reacting to the threat of flooding. Major flood events in the USA in 1993 and 2005 have led to a proposed order to limit flood plain development.
"The White House is considering a new executive order to limit floodplain development. The proposal covers roughly the same federal licensing, project, and funding decisions as NEPA. The heart of the proposal is section 4, which unlike NEPA imposes a substantive requirement (preventing or mitigating floodplain development.) The proposed language is after the jump. This is a very constructive step - we can't keep putting people and infrastructure in harm's way, nor can we allow development that increases flood risks elsewhere"
(University of California, 2009, 7)
The reaction in the UK has been very similar. The first of two planning guides was realised by the government in 2001. PPG25 was the planning authorities answer to the issue of flooding and set out
"...the importance the Government attaches to the management and reduction of flood risk in the land-use planning process, to acting on a precautionary basis and to taking account of climate change".
The way in which PPG25 hoped to impact on the issue of flooding was to incorporate flood risk into every stage of the planning process. An over view of the guidance states that,
â€¢ The susceptibility of land to flooding is a material planning consideration;
â€¢ the Environment Agency has the lead role in providing advice on flood issues, at a strategic level and in relation to planning applications;
â€¢ policies in development plans should outline the consideration which will be given to flood issues, recognising the uncertainties that are inherent in the prediction of flooding and that flood risk is expected to increase as a result of climate change;
â€¢ planning authorities should apply the precautionary principle to the issue of flood risk, using a risk based search sequence to avoid such risk where possible and managing it elsewhere;
â€¢ planning authorities should recognise the importance of functional flood plains, where water flows or is held at times of flood, and avoid inappropriate development on undeveloped and undefended flood plains
â€¢ developers should fund the provision and maintenance of flood defences that are required because of the development; and
â€¢ planning policies and decisions should recognise that the consideration of flood risk and its management needs to be applied on a whole-catchment basis and not be restricted to flood plains.
The guide goes into greater detail, incorporating the environmental agencies as well as other professional bodies' information and data to specify "considerations" for flood risk development. Specific advice is given to local authorities which includes a sequential test that can be followed to ascertain the best action to be taken in relation to an area's "risk" banding (PPG25, section 30, table 1). However, PPG25 was in essence just a set of guideline and recommendations that were not enforceable. The Environment Agency could advise on any issues but had no real authority and many felt that by dealing with developments on a case to case basis allowed for many inconstancies in the advice given by the EA (Environment Agency) (Entecuk, 2007)
PPG25 was replaced in 2006 by PPS25 (planning policy statement). PPS25 was introduced as a direct adaption to climate change.
"...strengthen and clarify the key role of the planning system in managing flood risk and contributing to adapting to the impacts of climate change" (Angela Smith, 2006)
Not only does PPS25 factor in climate change but it also clarifies the Environment Agency's role and ultimately more influence.
"The flooding Direction provides the opportunity for greater scrutiny for major developments proposed in flood risk areas. Where local authorities intend approve major applications despite the Environment Agency maintaining its objections, the Secretary of State will be asked to consider whether to call them in for decision" (Communities.gov.uk, 2006)
The statement also incorporates PPS3, which addresses the need for more housing by promoting the development of brown field sites as well as previously developed land.
It would appear that (especially over the last 10 years) the government has introduced measures to restrict the development of flood risk. Looking at the "Land Use Change Statistics (LUCS) Guidance" released by the Office of the Deputy Prime Minister (ODPM), there is evidence that PPS25 is influencing what areas are being developed especially in the case of previously developed land. The table below shows a steady percentage increase from 1989 to 2008. With new dwellings being built on previously developed land the PPG3 need for more housing is addressed without developing flood risk areas.
The use of previously developed land may be increasing but figure released by the same department show that the development of "high risk" areas remains constant with some more affluent areas such as London seeing an actual increase over the last 3 years.
Whilst other sites are being developed to cater for the housing shortage it apparently does not go far enough to stem the flow of development in flood risk areas.
Impact on property values
Although it has proved difficult to get an exact appreciation as to the current and future scale of the flood risk problem in the UK one thing all the agencies/organisations agree on is that it is a serious issue. Whilst after a flood event its damage costs can be calculated quite simply, the lasting impact on the value of a flooded property is less obvious. The fact that there are so many influences affecting the rise and fall of property values makes it very difficult to pin point a flood event as the overriding factor. In spite of these difficulties a number of agencies have published papers in this topic. The following section attempts to critically appraise these papers with a view to establish their validity as well as identify any areas that may be exploited for further study.
1. The impact of flooding on residential property values: Liverpool John Moores University & University of Wolverhampton 2004.
In 2004 Liverpool John Moores University and the University of Wolverhampton, conducted a report for the RICS on the impact of flooding on residential property values. After researching the issue the Universities identified two areas of investigation.
* Due to valuers and estate agents being the foremost market intermediaries an examination of their behaviours when dealing with flood risk properties was undertaken.
* With insurance being the only protection home owners can take out against the risk of flooding an interview of leading insurers on their policies relating to flood risk was undertaken.
The two different areas where tackled in different ways. A questionnaire was put together and sent to all the valuers and estate agents in Shrewsbury which had a history of flooding. The questionnaires where designed to establish a number of things that the Universities thought would impact on the value of the properties in the area.
- Awareness of flooding in the area,
- Perceptions of flood risk in the area,
- Sale process and building insurance,
- Forthcoming changes in the legislation relating to the sellers pack.
For the issue of insurance, a single risk manager at a property insurance company was interviewed to try to establish,
- Premium Setting,
- Type of information used in assessing flood risk,
- Flood risk categories,
- Effect of flooding on the cost of property insurance,
- Flood risk banding.
From their investigation the Universities came to some very specific conclusions both in financial impact of flooding as well how long these financial impacts last. For example,
"Properties which have flooded within the last 5 years are discounted in value by valuers compared to similar properties which have not, though the degree of discounting is highly variable. The median value approximates 12%, though there are wide variations according to circumstances from this median value. The properties may be some months longer on the market than other similar properties".
Whilst there is logic in the methodology the Universities have used to establish these claims there is a number of issues that go against what is being said. From looking at the report a number of points can be identified that put in jeopardy the validity of the findings.
- From the 260 questionnaires sent out only 170 where estimated to have been received by valid valuers. Out of the 170 only 17 where returned completed going a response rate of only 10%. In order to obtain more results a revised version questionnaire was resent out to ever valuer that was a member of the RICS. In total (including the original 170) 13,170 property valuers received a version of the questionnaire. In total only 64 where returned completed. Even with this small amount of material the study published its finding. This seems too little information for the results to be recognised.
- The questionnaire was originally sent to Shrewsbury as they had a history of flooding but after a poor return rate the investigation went national. However there is no guarantee that the participants of the national survey where in a flood risk area or had any experience with flood risk properties.
- Only the perceived risk of the values/estate agents was considered, even though they are the main market intermediaries the buyers have the final say on whether the property sells and for what price. The perceptions the general public have on flood risk would therefore need to be considered.
- Only a single "risk manager" was questioned in relation to the insurance of flood risk properties. The experiences of one individual, however valid, can't be used to set a general consensus.
- Whilst the report does mention the fact that the prices of properties in some areas recover faster after a flood event there is no mention of other factors that may have affected the sale i.e. Current economic influences, demand for housing and interest rates.
Whilst the majority of the methodology behind this report can be deemed relevant and creditable they information gathered is far short of what could be considered conclusive. Another major short coming lays in the fact that whilst the valuers and estate agents have been questioned on the subject, no attempted has been made to ascertain the purchaser's views. If flooding is in fact a growing problem its increased media exposure will no doubt influence any potential buyers' perception of the risk. This in turn could lead to "blight" (similar to problem neighbourhoods) being placed on all flood risk areas and therefore reducing the property values. Overall this reports intentions and methodology are relevant but its execution and results are too weak to contribute to answering the question it set out to answer.
The information reviewed in this section of the dissertation has some constant themes. There seems to be an acceptance by all that the problem of flood risk in the UK is very real problem that can only have a negative impact on property values. There is an almost categorical opinion that the problem is worsening with climate change and flood plain development being singled out as the main culprits of this escalation. However, whilst the causes and increasing impact are apparent there is no accepted measurement as to the extent of the current situation or any agreed upon forecast of the future. This uncertainty makes establishing an accurate impact on property values very difficult even though attempts have been made. Whilst the issue of insurance and the opinions of estate agents and property valuers should and will be considered (as seen in previous studies) in this reports investigation the fact that the problem, to whatever degree, is worsening means it is only a matter of time before areas with a history of flooding bare it's blight. This issue of buyer impact on flood risk property is something neglected in reports and feared by the government. If an area becomes synonymous with flooding and is avoided by the public and developers alike any hope of building a sustainable future there is lost. To this end this issue as well as insurance and valuer opinion will be investigated to ascertain a clearer understanding on the impact flooding has on property value.
Public Perception of flood risk
When making any purchase a prospective buyer will consider any risks attached to such a transaction. To fully understand the behaviours of the buyer it is necessary to appreciate both their awareness of the risk as well as their perception of it. This is no different for any floodplain population whether in purchasing insurance or choosing to buy a property located in such an area. An individual's awareness of flood risk as well as their perception of it could well influence their willingness to purchase such a property as well as dictate the price they are willing to pay.
Awareness of risk
When assessing any possible risk an individual must not only be privy to information about the risk but also invest time in researching it. Without prior knowledge the risk could remain unforeseen until it is too late. This seems to be the trend when addressing the issue of flood risk to properties. Reports into the awareness of "at risk" populations reveals residents of such areas show little knowledge of the danger. The Environmental Agency research into the effectiveness of flood awareness campaigns targeted at residents of "at risk" but not necessarily flooded areas showed that whilst 95% of those questioned agreed flooding was a serious issue only 45% knew it effected them (BMRB, 2002). A further report by the Environmental Agency (EA/DEFRA, 2005) addressed this issue. After a survey of properties in locations flooded in 1998 and 2000 it was reviled only 24% of residents were aware of the flood risk before the events.
This problem appears to stem from the ways in which the populous of a flood risk area become aware of the issue. The main source of information in the UK is provided by the Environmental Agency. This information manifests itself in a number of ways, flood maps showing "at risk areas" as well as flood warnings cater for the UK as a whole and for a price a property specific letter can be requested detailing the risks posed to it. However as there are is no current regulation in place that forces sellers to provide any information about flood risk many buyers remain ignorant about the dangers until it is too late. This can be seen as being the case in respect of the floods in Bewdley in 1998 with many of the victims simply unaware they were at risk (BBC, 1998).
Perception of risk
Even with full knowledge of flood risk each individual will react differently to it in relation to their perception of it. Studies have shown that residents of an "at risk" area have the ability to just ignore the risk of flood (Barnett and Breakwell, 2001). Other people focus on the probability factor rather than the potential damage if flooding were to happen and compare it to more likely events such as fire.
The physical presence as well as media coverage of flood defences also influences public perception (Pynn and Ljung, 1999). Many residents over estimate the effectiveness of these defences and often believe them to be a complete solution to the problem. This however is not the case with many defences being lower than historic flood levels and if breached can often slow the receding flood waters.
It is evident that a high proportion of the UK's population are simply unaware of the risk there are at in regards to flooding. Furthermore unless they have fallen victim to flooding in the past most people, whether aware of the risks or not, simply don't understand the devastation it can cause.
With the risk of flooding in the UK set to increase due to ongoing flood plain development as well as the change in climactic conditions the second part of this dissertation seeks to determine what impact this may have on the value of "at risk" properties.
To quantify the possible impact the research has been designed to assess what impact a populous aware of the risk may have as well as the insurability of "at risk" homes. By investigating the attitudes and behaviours of these groups I hope to produce a quantitative impact figure.
Research Design and Methodology
The core aim of this dissertation is to assess what impact the increase in flood risk could have on property prices. It can be expected that any negative events or environmental factors would have a detrimental impact on the value of effected and "at risk" properties. It is only natural for any resident or prospective investor to hold concerns over the resale value of a property if it were to be affected by a flood. This is something that is heavily dependent upon public awareness but as discussed previously with the increase in flood events and media coverage awareness can only increase. If residents where to leave the area and prospective investors purchase on lower risk sites, it would leave the area with an oversupply over units due to the low demand. This low demand could see properties remain unsold for prolonged periods of time with discounting being required to sell them.
The issue of insurance will also have a bearing upon the value "at risk" properties. In the UK flood insurance is not widely available as a separate policy but is normally included into generic household policies however a survey of "at risk" properties (BRMB, 2006) revelled that only 1 in 3 policy holders knew if they were covered for flood damage. Whilst the specific purchase of insurance against flooding can be interpreted as the buyers willingness to except the risk of flooding if the insurance was to be at a much higher premium than in lower risk areas or simply not available at all properties could again remain unsold.
This state of affairs points back to the fact that a high percentage of the UK is simply unaware of the risks posed by flooding. I believe that with the increase in flood events as well as media campaigns the level of awareness will increase which in turn will impact on property values.
Bearing in mind the previous statements I believe that to best accomplish the aim of this dissertation, investigation into two areas is needed.
- The potential behaviours of a risk aware market in relation to discounting.
- The insurability of at risk properties.
Investigation into a risk aware market
To investigate the purchasing behaviours of a flood risk aware market a structured hedonic questionnaire has been distributed by hand and by post in Preston and the surrounding area. The questionnaire itself is based around a property currently for sale in the area. The participant is to be given all the relevant information regarding the property as well as the current asking price. The questionnaire is then broken down into sections.
- Generic questions in regards to age, race, sex family size to establish a demographic.
- A series of hedonic questions aimed to establish the behaviours of a risk aware buyer.
- A series of questions aimed at the participant's current housing and insurance situation to establish current risk awareness and insurance factors.
Using Preston and the surrounding area as a case study the aim is to establish
- The purchasing behaviours of a risk aware market in relation to pricing discounts.
- The current level of flood risk awareness in the area.
- The current level of flooding insurance and insurance cost in the area.
- Any influencing demographic factors.
The rationale behind this investigation approach is as follows. All prior investigations into this subject have been for the most part based upon information gathered from valuers and sellers of property. As there is no regulation to force the release by sellers as to what risk the property is under in relation to flooding and that current awareness of the issue is low I believe that this lack of public understanding is masking the potential future impacts.
As ascertained by the review of relevant literature the further development of flood plains as well as climactic changes is increasing the frequency of the problem. This increase in flood events as well as campaigns by the Environmental Agency is set to raise flood risk awareness. To this end research into how a risk aware market will behave is necessary to understand the impact it will have on property values.
This section was included to ascertain whether factors such as age, sex and family size has any influence on the willingness to invest in a flood risk property.
Hedonic surveys have been carried out to ascertain impacts on property values in the past. In the case of the Sheffield super tram (Antwi and Henneberry, 1995) a hedonic analysis was carried out to understand what impact its construction would have on the surrounding properties. In theory, flood risk awareness would impact upon house prices in the same way the construction on a new transport system, neighbourhood quality, location, proximity to amenities and schools would.
Current Risk Awareness and Insurance Status.
By including questions relating to the current awareness of and current insurance status comparisons can be made to the Environmental Agencies previous studies to see whether there has been an increase of both awareness and price in recent times.