Coastal home buyers ignore growing flood risks, despite clear warnings and rising insurance premiums

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(THE CONVERSATION) Apollo Beach, Florida is a maze of canals lined with hundreds of homes perched on the water’s edge. The entire community, just south of Tampa, is only about 3 feet above sea level, which means it is at risk from storm surges as sea levels rise. .

Homebuyers along America’s coasts can check each property’s flood risk as easily as they check room sizes – most coastal real estate listings now include details about future flood risk that take into account of climate change. In Apollo Beach, for example, many properties are at least 9 out of 10 on the flood risk scale.

This knowledge doesn’t stop home buyers, however.

Waterfront homes sell out within days of going on the market, and the same story is playing out all along Florida’s South Coast at a time when scientific reports warn of the growing risks of coastal flooding as the planet warms.

We are professors of urban geography and American politics who follow the real estate industry. To understand why people ignore a risk that could lead to costly damage and possibly reduce the value of their property, we surveyed hundreds of Florida real estate agents about their clients’ motivations and concerns.

Here’s what we learned.

There is no incentive for buyers to consider long-term risk

We surveyed 680 licensed real estate agents in Florida at the end of 2020. Their responses suggest that potential buyers, on the whole, are not considering elevation or vulnerability to flooding when looking for new homes, and the availability of detailed flood hazard maps had little or no impact. on them.

Part of the problem may be that mortgage lenders and appraisers don’t factor in the vulnerability of properties to sea level rise, so buyers don’t immediately feel the risk in their wallets. Wealthier buyers who don’t need a mortgage aren’t required to buy flood insurance, and Congress has a history of rolling back increases in flood insurance rates.

In short, nothing forces buyers to consider long-term risks.

At the same time, studies clearly show how risks translate into costs. A recent paper by scientists who create flood hazard maps found that Hillsborough County, Florida, home to Apollo Beach and Tampa, will likely see a 70% increase in damage from annual flooding in by 2050 due to climate change. That’s less than a 30-year mortgage.

What Realtors Hear

When we started the survey in 2020, we estimated that if a portion of the population avoided properties at risk of flooding, demand would drop and prices would drop. Our previous survey in 2018, involving coastal Florida homeowners, found that both Republicans and Democrats believed the value of their future home would not be affected by rising seas.

To test the theory that the market largely ignores flood risk, we asked real estate agents what they had seen: to what extent had they observed that house prices were falling or not rising as quickly for properties at risk of flooding? Forty-five percent answered “not at all”. Only 11 of the 680 agents indicated that the prices of flood-prone properties stagnated or fell “very frequently”.

We also asked if they had seen mortgage lenders turn down loan applications or raise fees for loans in flood-prone areas, in the form of points or mortgage insurance, for example. Sixty percent answered “not at all” and only 7% answered “quite frequently”, “very frequently” or “all the time”.

The vast majority of agents, almost 70%, said they expected little impact on the housing market over the next five to ten years.

Here is part of what they said.

“People are always buying and will always buy in coastal Florida, and if they buy, there will be no decline in value. The largest pool of buyers driving the market are retirees or people on the point of being and they believe they will be long gone before there is an impact of climate change.They mainly buy on emotion and do not consider the long term cost of ownership. They also buy with cash and without a mortgage.

Even lenders currently have no real incentive to decline mortgage applications for properties threatened by future sea level rise. Federal agencies that purchase conforming mortgages do not currently require the collection of information on the risk of flooding or likely sea level rise. If these requirements were to change, the risk of flooding would result in a loan decision.

“Buyers of coastal properties are financially able to be more risk aware and can afford the higher insurance rate or self-insure. Sea level rise is currently not a priority in our local market.

Federal flood insurance has been heavily subsidized with US taxpayer dollars for years. In fact, the National Flood Insurance Program owes the US Treasury about $20 billion for expenses beyond the premiums paid by homeowners. Effective April 1, 2022, all of its new and renewed flood insurance policies will be subject to a new rating system called Risk Rating 2.0 designed to take risk into account.

But the program faces political pressure from members of Congress to make sure rates don’t rise too quickly or get too high. Additionally, buyers buying homes for cash, a relatively large share of the market in South Florida, are not subject to flood insurance requirements.

“Wealthy people will still be attracted to the idea of ​​living by the sea, but they will probably spend a lot of money to make the property more resistant to the effects of sea level rise. that the demand for high-end properties will not falter as much.

A few agents have suggested that wealthy homeowners take the risks seriously and plan to invest in structural changes such as raising homes that could make their properties safer from rising sea levels and storm surges. .

The market does not integrate long-term risks

Due to rising sea levels and storm risks resulting from climate change, we conclude that many homes currently being sold in South Florida will not survive their 30-year mortgages without damage or costly adaptations, and that the resale of vulnerable homes at sea level is likely to become increasingly difficult.

So far, policymakers in Florida have either ignored the risk or taken only limited steps to correct weaknesses, sometimes increasing risks elsewhere. For example, when levees are erected, they can change the way sand penetrates, increasing erosion in nearby areas.

Many people believe that “the market” will take care of this problem: that home buyers, aware of the impending risks, will reduce the prices of vulnerable properties, which will ultimately reduce their attractiveness and value. But what Florida real estate agents told us calls into question the assumption that the market has already priced in this risk.

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