Homes in flood plains are overvalued by billions, study finds
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Flood water surrounds a building in this aerial view after Hurricane Nicole made landfall in Daytona Beach, Florida on November 10, 2022. Photo: Joe Raedle (Getty Images)
This story was originally published by Grist. You can subscribe to the weekly newsletter here.
American homes in floodplains are overvalued by hundreds of billions of dollars, according to a study published Thursday in the journal Nature Climate Change. Low-income homeowners in Republican-controlled states are particularly at risk of seeing their home values plummet as global warming accelerates.
Flooding is a costly and deadly natural hazard in the United States. For decades, the Federal Emergency Management Agency offered flood insurance at discounted rates and gave developers incentives to build homes in flood-prone areas. The agency’s flood maps are also notoriously outdated. This has created a dangerous situation for homeowners who have to deal with debilitating floods year after year.
The study, published by a group of academic, nonprofit and government organizations including the Environmental Defense Fund and the Federal Reserve, found homes in floodplains are overvalued by as much as $237 billion.
The researchers found that coastal property owners and homeowners in states with inadequate or nonexistent flood disclosure laws, such as Florida, where there are no disclosure laws and homes are overvalued by $50 billion, are particularly vulnerable to overvaluation. They also found that a large portion of the overvalued homes are in areas that FEMA says are not currently at significant risk of flooding, a signal that flood maps need updating. The study’s authors told Grist that states must assess flood risk and communicate it clearly to homeowners, regardless of whether their home is in one of the agency’s “special flood risk areas,” where flood insurance is mandatory for most mortgages.
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According to the study, low-income homeowners could lose up to 10 percent of their market value in the coming years, a blow to those least able to do so. “What we’re finding is that low-income households are more at risk of price deflation in the housing market,” Jesse Gourevitch, a fellow at the Environmental Defense Fund and co-author of the study, told Grist. “If this bubble were to burst, these households could be at risk of losing their homes.”
The consequences of climate-related flood risk extend beyond individual homeowners to their larger communities. The study showed that cities in northern New England, eastern Tennessee, central Texas, Wisconsin, Idaho, Montana and many coastal areas could see their budgets shrink if the true value of homes in floodplains were taken into account and property tax revenues declined as a result.
“Many local governments rely heavily on property tax revenues for their overall budgets,” Gourevitch said. “In areas where flood risk is particularly high, and where flood risk is not adequately priced into property values, there is a potential for the appraised value of properties to decline.”
Some states have enacted laws requiring sellers to disclose flood risk to buyers, which is a good way to hedge against the overpricing described in the study. This week, the North Carolina Real Estate Commission approved a petition to give homebuyers the right to flood risk information. But twenty-one states, including Georgia and New York, still keep homebuyers in the dark. Implementing disclosure requirements in these states could help address the future financial risk of flooding.
The study “raises many moral questions for policymakers about who will bear the cost of these climate impacts,” Gourevitch said. Federal and state lawmakers may soon have to reckon with whether the overstatement is an individual burden or it’s up to the government to bail out the people.
This article originally appeared in Grist at Grist is a non-profit, independent media organization dedicated to telling stories about climate solutions and a just future. Learn more at Grist.org
