The economics of flood insurance
The economics of flood insurance

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The economics of flood insurance

2 Building on flood plains

The idea of making space for water takes into account the natural processes and possibilities of flood management, offering more effective techniques and more realistic goals than relying just on projects to keep water out. Reconnecting with traditional flood plains may be the best way to ensure that river flooding is managed, but it is problematic for households, insurers and government if there are properties built on the traditional flood plains. Unfortunately, in the UK this has not been unusual, especially for residential housing. This section starts to unpack the elements of the problem of flooding using the methods of economics.

A photograph of flooding in a housing estate
Figure 4 Housing developments in areas prone to flooding are commonplace

It may seem perverse to build homes on land that may flood. However, in 2016-17, 11 per cent of new residential properties in England were in areas with a high flood risk compared with 9 per cent the previous year (Ministry of Housing, Communities & Local Government, 2018). The next activity explores the reasons why developers may favour such locations.

Activity 4 Building on Flood Plains

Timing: Allow 15 Minutes for this activity

Search the internet to find information to help you answer the question: why do developers choose to build homes on flood plains? You will need to:

  1. Choose a few suitable key words for your search. For example, try searching with the words ‘build’, ‘flood’ and ‘plain’. Be prepared to inspect results beyond just the first page. Try adding additional search words to refine your search – the search engine may give you some suggestions.
  2. Select reliable sources. One way of thinking about the reliability of a sources is to use the PROMPT criteria developed by the OU Library. PROMPT stands for:
    • Presentation- Is the presentation of the material professional?
    • Relevance- Is the material relevant to the question asked?
    • Objectivity- Is the information weighed up objectively or designed to persuade you of a pre-defined outcome?
    • Method- How has the information been obtained, analysed and presented?
    • Provenance- Where did the information come from? Who wrote it?
    • Timeliness- How recent is the information? Does it relate to the right time period?
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Discussion

You will probably have found and used different sources. For this example, the focus was on those whose titles and brief descriptions seemed as if they would be most relevant to the question: ‘Flood debate: should we build on flood plains?’ and ‘Why do we build on flood plains?’. In particular, sources that were fairly recent (timeliness). You should also concentrate on sources you feel you can trust (provenance), such as government, news services, specialist organisations and journals, and academic sources.

The reasons found for why developers choose to build homes on flood plains were:

  • Pragmatic reasons – housing shortages create pressure to build on any available land (RIBA, 2018; Chelmi, 2016).
  • Aesthetic reasons - people like houses on flat land and find locations near water attractive (and historically towns were built there because of the need for water) (Harvey, 2014).
  • Practical reasons - it’s easier for builders to build houses on land that is flat and close to existing transport and utilities (water, electricity, and so on) (Harvey, 2016).
  • Financial reasons - it’s cheap to acquire flood plain land (Thomas, 2016; Chelmi 2016).
  • Legal reasons - it’s easier to get planning permission for land that is not high up and visible and it’s not illegal to build on flood plains (Harvey, 2014).
  • Economic reasons - there are no flood-related costs to the builder of building on flood plains – if flooding happens, the costs are borne by others, particularly households (Harvey 2014).

The last reason in particular points to the existence of market failure in the form of an externality. An externality occur when an economic transaction produces benefits or, as in this case, costs that are not reflected in the market price.

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