Recent warnings from the Met Office regarding heavy rainfall and potential flooding highlight the immediate disruption caused by adverse weather. However, the economic consequences of flooding extend far beyond delays and damaged property, with significant financial implications for households, the property market, and the insurance industry.
One of the most notable impacts of flood risk is on property values. Properties in high flood-risk areas are sold at an average discount of 8.14%, with the figure rising to a substantial 31.3% for those at very high risk. Market participants often underestimate flood risk, meaning property prices tend to fall even further following extreme weather events. This effect is especially pronounced in lower-priced properties, which experience greater price discounts compared to higher-end homes. Furthermore, with flood risk expected to increase by 8% between 2050 and 2080, property values in vulnerable regions like East Anglia and Yorkshire are likely to face continued downward pressure.
The role of insurance in flood-prone areas is also crucial. The Flood Re scheme, a government-backed reinsurance programme, helps to keep premiums manageable for homeowners in flood-risk areas. However, properties built after 2009 and commercial buildings are excluded, leading to significantly higher premiums for many. With the scheme set to end in 2039, there is uncertainty about how homeowners will manage potentially skyrocketing insurance costs in the future.
In addition to individual financial strain, there are broader economic impacts. The Public Accounts Committee recently revealed that 500 critical flood defence projects will no longer receive funding due to rising costs and inflation. This shortfall in investment has left communities like Lowestoft vulnerable to both immediate flood risks and long-term economic stagnation. Without adequate defences, businesses face difficulties in obtaining insurance and investment, creating a cycle of decline that undermines local economies.