Urban housing markets increasingly face escalating flood risk alongside persistent scarcity and affordability constraints. While these pressures shape price dynamics, their effects depend critically on heterogeneity in household risk perceptions and preferences. This study develops a spatial agent-based model (ABM) to examine how price differentials and residential patterns emerge from bottom-up interactions in a flood-prone urban environment. Parameterised to represent a typical city in the Netherlands, the model conducts scenario experiments that vary (i) market demand pressure, (ii) spatially heterogeneous individual risk perception biases, and (iii) public flood defense systems, including traditional defenses and nature-based flood defenses with co-benefits. Results show that market pressure and biased risk perceptions are the primary drivers of price growth and income-based exclusion, emerging well before flood defenses are introduced. Traditional flood defenses narrow flood-related price discounts by reducing objective risk, with nature-based defenses further reinforcing existing patterns through amenity capitalization. In both cases, public flood protection mainly reallocate demand spatially without altering overall market participation or affordability.

Adaptation to climate change has never been more urgent. The literature is full of examples when public (adaptation) action might create unintended consequences, for example, for individual risk perception and private actions. It is also well-known that people rarely understand risks objectively, implying that their choices are guided by biased risk perceptions. However, it remains unclear how these different effects interact and whether overall cumulative risks are reduced. This paper presents an agent-based model of a housing market to examine how alternative climate adaptation policies—traditional defenses and Nature-based Solutions (NbS)—interact with households’ biased risk perceptions, behavior, and affordability. We extend our existing housing market agent-based model (Filatova, 2015) to fit the Dutch context, enhancing it with a new negotiation algorithm, updated decision-under-risk behavioral model, and new empirical data on both housing prices and individual risk perceptions. Our simulations reveal that while NbS enhance resilience and environmental quality, they may also drive socioeconomic exclusion if access is not regulated. Traditional defenses reduce exposure but have a limited effect on spatial inequality. Our results unveil complex interactions between behavior and markets, highlighting that flood risk acts not only as a hazard but as a market signal shaped by individual perceptions and existing institutions. Equitable adaptation requires integrating physical protection with policies addressing affordability and behavioral dynamics.