Spatial Heterogeneity in Flood-Risk Capitalization: Evidence from the Thames Estuary Housing Market

Understanding whether housing markets internalize climate-related flood risk is central to assessing the economic consequences of coastal exposure. This study examines the capitalization of flood risk in residential property prices across the Thames Estuary housing market. Using transaction data for more than 73,000 residential properties, the analysis combines global spatial econometric models with geographically weighted regression to evaluate both the average and spatially varying effects of flood exposure on housing values. Global hedonic and spatial models indicate a positive average association between flood-zone exposure and property prices, suggesting that properties located within designated flood-risk areas command higher values. However, geographically weighted regression reveals substantial spatial heterogeneity in this relationship. In outer estuary communities, flood exposure is associated with significant price discounts, indicating that environmental risk is capitalized directly into housing values. In contrast, several urban waterfront submarkets display positive capitalization effects, where accessibility advantages and waterfront amenities appear to offset perceived environmental exposure. These findings demonstrate that the average flood-risk premium estimated by global models masks the coexistence of distinct spatial pricing regimes. Environmental risk is discounted in peripheral coastal markets but may be offset by amenity and redevelopment value in high-demand urban waterfront locations. The results highlight the importance of spatially heterogeneous modelling when evaluating climate-risk capitalization in housing markets and suggest that aggregate housing price signals may underestimate localized exposure within rapidly developing coastal urban systems. JEL Classification Codes: R31; R12; C21; Q54