EU-MACS Coordinator: Prof. Adriaan Perrels,

Responsive real estate markets and urban planning improve climate change preparedness

Jun 16, 2017 12:05
Responsive real estate markets and urban planning improve climate change preparedness

By Veera Honkanen (link to the original article which is in Finnish)

Flood risks may not be reflected in housing prices, even though the risks exist, researcher Athanasios Votsis says. Green areas, on the other hand, raise the price per square meter.

Will sea views and proximity to the sea always increase the prices of single-family and terraced houses? Not always.

This can be deduced from the dissertation of Athanasios Votsis, completed at the University of Helsinki, in which he studied the impact of flood risks and green areas on the price per square meter of dwellings. Votsis is a socioeconomic impacts researcher at the Climate Service Center of the Finnish Meteorological Institute.

The study utilized official flood risk maps by the Finnish Environment Institute (SYKE), combined with environmental information and detailed housing transaction records realized in 2000-2011.

In coastal Helsinki and Espoo (parts of Helsinki’s metropolitan area), the average price per square meter of detached and terraced houses fell on average by 20 percent in flood risk areas. The level of flood risk affected the price: the more likely the flood was, the more the price dropped.

The impact was also visible elsewhere in the country. In Pori, the influence of flood risk on price per square meter was on average 6 to 8 percent.

SYKE released detailed flood risk maps in 2006-2008 and, within a few years, the information was reflected in the prices.

– It was not a random swing in the real estate market. The same was true of demand: demand fell in coastal areas that were indicated as flood-prone by the maps, Votsis explains. Demand and price, on the other hand, rose in nearby coastal properties, which were otherwise similar but were indicated as flood-safe by the maps.

“The safe properties could be in the immediate vicinity of the risky assets,” Votsis says. The researcher does not want to mention examples of risky areas in Helsinki, as it might bring too much negative attention to certain areas. The flood risk maps are freely available to the public.

Votsis points out that he does not know the channels by which flood risk information propagates in the housing market – the end effect on market prices is identified, but the actual information pathways need to be explored by follow-up psychological/behavioral research. Also, it is not certain that flood risk awareness is maintained year after year.

– The sea view may not always be as valuable as property prices indicate. Flood risks may not be reflected in prices even though the risks exist, Votsis says.

The impact of flood risk on apartment prices was not studied.

Are parks, forests or fields the most valuable green spaces?

While flood risks may reduce prices, green areas increase prices per square meter.

According to Votsis, the average price per square meter of apartment properties rises between 1 and 4 percent when the apartment is 100 meters nearer a green area. Including interactions between neighboring properties, the total benefit ranges from 2 to 6 percent.

However, there are differences between green areas: for example, in the center of Helsinki, urban forests or parks raise the price. In Helsinki’s suburbs, such as Malmi or Suutarila, parks do not affect the price. But forests and open fields do raise it.

“The most valuable green area is always an urban forest; for example Helsinki’s Central Park,” says Votsis.

The price effect decreases the farther away one is from a green space. According to the researcher, it is advisable to preserve green spaces inside the urban tissue.

Money wasted without good planning

What’s the value of such research then? According to Votsis, such information should be used in urban and site planning, guiding building and spatial planning.

Climate change implies, among others, increased frequency and intensity of flooding, for example through heavy rains and sea surges. In the future, insurance companies may not be able to compensate for all costs incurred by floods.

– If urban development in safe areas is not encouraged, by 2040 the most intense construction will happen in areas with high flood risks, Votsis says.

This is not a wise use of money and resources.

At the same time, green areas can alleviate the effects of floods – for instance, as the water is absorbed into the ground. Green spaces also have various other benefits for residential areas – psychological, aesthetic, and comfortable ambient environment are a few examples.

According to Votsis, there is strong pressure to build homes in Helsinki, which often means eating the remaining green areas.

– The argument is usually that green spaces do not bring economic value or that other factors are more important. My research shows that this kind of reasoning is incorrect, he says.

Taking account of economic factors does not have to exclude environmental factors. Votsis believes that sustainable economic development and adaptation to climate change are both possible – at least in theory.

Additional information:

Finnish Meteorological Institute
Researcher Athanasios Votsis, tel. +358 (0)50 433 0789,
Research professor Adriaan Perrels, tel. +358 (0)50 583 8575,
University of Helsinki
Professor emeritus in Urban Economics Heikki A. Loikkanen, tel. +358 (0)40 5010156,

Dissertation in digital form: Athanasios Votsis, Space and price in adapting cities – exploring the spatial economic role of climate-sensitive ecological risks and amenities in Finnish housing markets.