Flood Risk, Climate Change and Housing Economics

The four fallacies of extrapolation

Working Paper 2011:02

Authors: Yu Chen, Gwilym Price and Danny Mackay (University of Glasgow)

This paper argues that major gaps exist in the research and policy understanding of the intersection of flood risk, climate change and housing markets. When extrapolating the research on historical flooding to the effects of future floods—the frequency and severity of which are likely to be affected by global warming—housing economists must be careful to avoid a number of methodological fallacies: (a) The Fallacy of Replication, (b) The Fallacy of Composition, (c) The Fallacy of Linear Scaling, and (d) The Fallacy of Isolated Impacts. We argue that, once these are taken into account, the potential magnitude and complexity of future flood impacts on house prices could be considerably greater than existing research might suggest. A step change is needed in theory and methods if housing economists are to make plausible connections with long-term climate projections.