“Property values will go underwater long before property actually goes underwater,” predicted oceanographer John Englander in his 2012 book, “High Tide on Main Street: Rising Sea level and the Coming Coastal Crisis.”
The book landed in stores on Oct. 22, the day Hurricane Sandy formed in the Atlantic. Reviewers immediately noticed that Englander had also predicted exactly such a storm, ravaging low-lying areas of New York City and the Jersey Shore, though he had no idea it would come so soon.
Now many coastal real estate markets are facing a wave of rising flood insurance costs that some fear could collapse property value and drive a new wave of foreclosures, and some brokers say they’re already seeing the early effects.
The spike in flood insurance prices comes mainly from two sources: revised federal flood insurance rate maps that assign high risk to many more properties, and a rollback in federal subsidies for flood-insurance mandated by the Biggert Waters Act, a reform that Congress passed into law in 2012.
A rebellion is brewing against the rising insurance costs. George Kasimos, a Realtor and broker in Toms River, N.J., launched an organization called Stop FEMA Now last winter after the Federal Emergency Management Agency, which administers the National Flood Insurance Program, issued draft flood-risk maps that suggest many properties could face steep increases in insurance costs. The activist group quickly gained more than 10,000 members.
Fear of high
In his area, battered by Sandy, many high-risk properties are already unbankable and uninsurable, he said. “You can’t get a mortgage. They’re cash deals. You can’t get flood insurance for them, of if you do it’s $10,000, and the deal dies.”
That number is close to FEMA’s own estimate for modest homes in risky areas. Once subsidies are phased out starting Oct. 1, flood insurance would cost an estimated $10,723 annually for a standard policy covering the building for $250,000 and the contents for $100,000, for building located four feet below the designated “base flood elevation”in a high-risk non-coastal area, the agency reported. Costs in some cases may be much higher.
Kasimos and coastal community advocates predict that the increased flood-insurance cost will price many working people out of coastal real estate markets, weighing down home values. “A 30-year fixed mortgage at $100,000 is about $450 a month,” Kasimos said. “So if your flood insurance rises to $10,000, about $900 a month, your property value is going to be diminished by $200,000.”
Kasimos warned that climbing insurance prices could drive a new wave of foreclosures. “They’re going to make the 2007 housing bubble look like a walk in the park,” he said.
In Key West, Fla., engineer and planner Annalise Mannix estimates the Biggert Waters reforms have accelerated her town’s reckoning with the econmic consequenes of sea level rise by several decades.
Mannix says properties are still “selling like hotcakes” in the Keys, but she rexpects that unaffordable flood insurance will soon take a sharp toll on this low-lying community. The town’s average street elevation is just three feet and high spring tides regularly flood many roads that lie just one or two feet above mean high tide, she said.
Sea level at Key West rose about nine inches during the past century, Mannix reports, and scientists now expect an average increase of a meter or more during this century.
This risk has seemed remote to many home buyers and lenders in the past.
“That’s all going to come to a head in the next couple of years,” Mannix said, when flood insurance subsidies start phasing out.
For flood-prone properties, FEMA plans to raise rates 25% annually until they reflect true actuarial risk.
“People who only make $40,000 a year, they’re not going to pay $20,000 a year for flood and $6,000 a year for wind insurance,” Mannix said.
Mannix, a consulting engineer who formerly worked for the town government, is currently conducting a study to evaluate whether wind insurance is overpriced in the area. But she says rising sea levels pose a more serious risk to the Keys, and the end of subsdized flood insurance makes that risk an urgent matter for the region’s economy and real estate market.
Mannix is urging creation of a panel of real estate and municipal officials to begin planning to manage local economic impacts of rising seas and flood insurance costs. “How do we plan on keeping our workforce in the Florida Keys?” she said.
Meanwhile, the prospect of a spike in flood insurance prices has spurred efforts in Congress to delay removal of federal subsidies. The Biggert Waters Act, which passed with strong bipartisan support, was meant partly to reduce what was then $18 billion in debt carried by the National Flood Insurance Program.
