Who Pays for Flooding? Local Flood Disasters and Racial Inequality in the Mortgage Market

The racially unequal impacts of flooding on local housing prices and community recovery are well established, but an intermediary stage of the housing process that has significant consequences for where people live – the mortgage market – has received less attention. We consider how flood events contribute to racial and spatial inequalities in mortgage access by linking new national data on coastal and river flood disasters in the United States to detailed national data on mortgage applications between 2009 and 2019. Specifically, we examine how flood disasters change lenders’ willingness to issue loans, and how these associations differ by applicant race and ethnicity. Flood disasters are followed by a reduced probability of approval by about 2% for all applicants. For white borrowers, this “flood penalty” on mortgage approvals weakens as the share of white residents increases in a neighborhood, but for Asian, Black, Latinx borrowers, this penalty remains regardless of neighborhood racial composition. Together, these findings suggest that lenders’ responses to flooding exacerbate existing racial disparities in access to mortgage credit, with implications for communities’ post-disaster recovery and families’ ability to accumulate wealth.