how do tax payers benefit when the house next to the creek rises in value because of the picturesque location?
Well property value takes into consideration the actual history of the property, which, if it included a major flood, fire, earthquake or other natural disaster, is supposed to be disclosed when the property goes on the market. Such insults to the property have the potential to cause unseen structural damages to the house that are not fixed along with the cosmetic repairs. Things like warped beams and joists, mold and so on.
In other words, those homes that have suffered damages or are in the areas where other homes have been damaged, would also take a hit in property value, which would take a long time to recover from, regardless of how nice the location is. Buyers tend to be a lot more educated in terms of what they are looking for in a home, and try to do their due diligence and learn about the neighbourhood where they are planning to buy. They are also demanding home inspections before signing on the dotted line to make what is likely one of their biggest investments ever.
We had a new development in our area about 10 years ago, shortly after we bought our home. What I knew from having lived in this part of Ottawa for almost 15 years was that the new development was being built on marshland that had been filled in. Sure enough, there was a problem within 3 to 5 years where peoples' homes were sinking, requiring major excavation and installation of 'floats' under the foundations. People were displaced from their homes for weeks while the New Home Warranty repairs were carried out. Despite the repairs and reassurances from engineers that the homes are fixed and that there should be no further problems, values of the affected homes are impacted compared to unaffected homes in the same development, and in some cases on the same street. It doesn't change what the homeowners had to pay for the property when it was purchased, but it will impact resale values. Now more than ever, when people are buying a home and they see a house with a spectacularly reduced price compared to others in the neighbourhood, they are suspicious, and rightly so.
You asked how taxpayers benefit when property values increase in a desirable location. I should think that these properties carry a higher property tax based on the value of the property and the house that sits on the property. Perhaps that is a topic that could be addressed at the city council level, because homes that were impacted by the flooding certainly (and rightly) required more city resources in the wake of the disaster, while other locations that weren't affected may have had increased wait times for emergency services (fire, police, ambulance) that were tied up while tending to flood victims.