Underestimating the impact of floods? Evidence from housing choice behaviour in HCMC
24 July, 2024
Flooding, a growing threat in many emerging markets, significantly impacts housing decisions. This research sheds light on how financial constraints and past flood experiences influence homebuyers’ preferences, providing crucial insights for developing effective housing policies in flood-prone urban areas.

With climate change exacerbating the frequency and severity of extreme weather events, urban flooding has become a pressing issue worldwide, particularly in emerging markets. The challenge of navigating housing choices in such contexts is intensified by financial constraints and varying levels of awareness about flood risks. Homebuyers, especially those with limited financial resources, often face difficult decisions between affordability and safety. This study delves into the dynamics of housing preferences amidst flood risks, financial constraints, and flood experiences, offering valuable insights that can guide policymakers in creating safer and more resilient housing markets.
House Prices, Flood Risks, and Financial Constraints
The findings from the study illustrate clear patterns in how homebuyers react to house prices and flood risks. Wealthier buyers tend to avoid flood-prone areas, preferring to invest more in newer, larger homes with desirable features such as square or corner plots and locations free from afternoon sun exposure. These buyers also favor properties closer to the city center and workplaces, and they avoid homes in narrow alleys or those near schools due to concerns over noise and traffic. Overall, higher house prices act as a deterrent against purchasing in flood-prone areas, enabling those with greater financial means to secure safer, more desirable homes.
Conversely, poorer buyers face a challenging reality. Financial constraints often force them to accept higher flood risks for the sake of affordability. They are less particular about the attributes of a house, with their choices primarily driven by lower prices. This economic necessity leads them to purchase homes in flood-prone areas, where properties are discounted. For these buyers, the immediate financial relief offered by lower prices overshadows the potential long-term risks associated with flooding.
The Influence of Flood Experience
Past experience with flooding significantly influences homebuyers’ preferences. Those who have previously lived in flood-affected areas show a strong inclination to avoid such locations in future purchases. The study’s Probit model reveals that flood experience increases buyers’ risk awareness, leading them to prioritize non-flooded homes even if it means paying a premium. For financially constrained buyers, this inclination to avoid flood-prone areas is present but less pronounced due to their limited budget. Nonetheless, the desire to escape the recurring impact of flooding drives these individuals to opt for safer properties when possible, even at higher costs.
The Discount Trap
A critical aspect of the findings is the phenomenon of the “discount trap.” Flooding leads to a notable discount in house prices, making flood-prone properties seemingly more affordable for buyers with limited financial means. However, this perceived affordability conceals a deeper problem: the discounted prices come with increased vulnerability and potential long-term costs. For poorer buyers, the reduced property prices in flood-prone areas create a situation where they are drawn into buying homes that, while cheaper upfront, expose them to significant flood risks. This results in a cycle where financial constraints force these buyers into vulnerable housing, perpetuating their exposure to environmental hazards and socio-economic disadvantages.
Proposed Solutions
- Enhanced Flood Risk Communication
One effective strategy to mitigate the impact of flooding on housing choices is to improve the communication of flood risks. Detailed and accessible information about historical flooding and risk assessments can empower buyers to make informed decisions. Providing clear data on flood risks, particularly targeting those without prior flood experience, can help prevent the underestimation of the dangers associated with flood-prone properties.
- Financial Support Mechanisms
To support low-income buyers in avoiding high-risk areas, the introduction of financial assistance programs is essential. Subsidies, low-interest loans, or grants can enable these buyers to afford homes in safer areas, reducing their need to compromise on safety due to financial limitations. Such mechanisms can help bridge the gap between affordability and safety, allowing financially constrained buyers to make more resilient housing choices.
- Development of Affordable Housing in Low-Risk Areas
Investing in the development of affordable housing in areas with low flood risk is crucial. This strategy provides economically disadvantaged buyers with safer alternatives without the need to compromise on safety due to budget constraints. While this approach may initially increase property prices, it effectively mitigates the long-term damages and losses associated with flooding, offering a sustainable solution to housing affordability and safety.
- Promotion of Flood-Resistant Housing
Promoting the construction of flood-resistant housing through government initiatives and policy incentives can significantly reduce the vulnerability of homes to flooding. Implementing flood resilience standards into building codes can provide safer living conditions, especially for vulnerable populations, and lessen the overall impact of flooding on communities. These measures encourage the development of housing that can withstand flood risks, providing long-term benefits despite higher initial costs.
- Strengthening Housing Policies
Strengthening housing policies by mandating comprehensive disclosure of flood risk information during real estate transactions and incorporating flood resilience standards into building regulations is essential. These measures ensure that buyers are fully aware of the risks and that new constructions are better equipped to handle potential flooding. Although these policies might increase initial housing costs, they offer significant long-term benefits by reducing flood-related damages and enhancing the resilience of the housing market.
The study provides valuable insights into how financial constraints and flood experience shape housing choices in emerging markets. It highlights the challenges faced by low-income buyers, who often have to accept higher flood risks due to financial limitations, and underscores the importance of effective flood risk communication and financial support mechanisms. By enhancing housing policies and promoting the development of affordable, flood-resistant housing, policymakers can help create safer and more resilient urban environments, minimizing the impact of flooding and protecting homebuyers’ investments. This research contributes significantly to understanding the dynamics of housing preferences amidst flood risks and offers practical solutions for addressing these challenges in emerging markets.
The full-text research article Underestimating the impact of floods? Evidence from housing choice behaviour in HCMC can be found HERE
Author group: Assoc. Prof. Dr. Pham Thi Kien, Dr. Bui Xuan Dung – Universsity of Economics Ho Chi Minh City (UEH).
This is an article in a series of articles spreading research and applied knowledge from UEH with the message “Research Contribution For All – Research For The Community”, UEH respectfully invites dear readers to look forward to upcoming newsletter UEH Research Insights.
News and photos: Author, UEH Marketing and Communications Department

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