The study examines the relationship between climate risks and house prices in the Netherlands.
A significant portion of Dutch housing is affected by land subsidence: around 17% of owner-occupied homes are subject to substantial subsidence due to soil compaction. Until now, little was known about the impact of land subsidence on property values. UvA researchers Lukas Hofmann, Martijn Dröes and Marc Francke (all with the Amsterdam Business School’s Finance section) are changing that. They combined data from 1.5 million property transactions in the Netherlands (from 2010 to 2021) with detailed data on land subsidence and flood risk.

Significant underestimation

The analysis shows that homes affected by land subsidence or located in flood-prone areas sell for lower prices, on average, than similar homes without these risks. Yet homeowners still significantly underestimate the likelihood of foundation damage due to subsidence.

Property prices drop by only 0.8% for homes with relatively high rates of subsidence (more than 3.3 mm per year). ‘With an average Dutch house price of €190,000 in the period 2010–2021, that’s just €2,300 per home – a fraction of the potential damage. The cost of repairing foundation damage can easily reach €100,000 or more,’ says Dröes. ‘Buyers and sellers not only misjudge the risks, but also barely factor them into their decisions.’

Once every 100 to 100,000 years

When it comes to flooding, homeowners tend to do the opposite – they overestimate the risk. Dröes: ‘People living in flood-prone areas believe their home could flood every 70 years. But that doesn't match the official flood risk statistics. Major flooding caused by a breach in the primary flood defences is expected to happen far less frequently – between once every 100 and 100,000 years.’

The researchers also looked at the combined effect of land subsidence and flood risk. Homes in flood-prone areas that are expected to experience more than 10 cm of subsidence by 2050 sell for 1.5% less on average.

Call for transparency

The findings tie in with the growing social and political debate on climate risks in the housing market. The research by Dröes and his colleagues highlights the urgent need for transparency about the risks of foundation damage, flooding and heat stress. ‘Just as energy labels have become standard, clear climate labels could raise awareness among homeowners and help limit future damage,’ Dröes concludes.