Flood Plains and Flood Pains

A law most Americans have never heard of quietly went into effect on October 1, 2013, the same day as the U.S. government came grinding to a shutdown. The law, known as the Biggert-Waters Flood Insurance Reform Act, will roll out over several years. Each year, a portion of the subsidies that keep federal flood insurance premiums artificially low for over 1 million policy holders around the country will be eliminated. Homeowners qualified for the subsidy because their property existed before the initial drawing of flood insurance rate maps. Approximately 20% of all property owners with federal flood insurance receive these subsidies. For example, some homeowners who currently pay approximately $1,000 per year for federal flood insurance will end up paying, after all subsidies are removed, an estimated $8,000 and $9,000 per year for the same policy. Premiums are based on the cost of the structure and the flood risk. Some policies are expected to cost as much $33,000 per year, or more.

There are an estimated 5.5 million property owners nationwide who hold flood insurance policies. 80% of these policyholders pay market rates. Every property with a mortgage in a designated flood plain must have flood insurance, and the federal government insures almost all of them. The highest number of subsidized policies, the equivalent of 1 out of every 8 subsidized policies, 260,000 of them, are located in Florida. A community like Key West, FL, the continental U.S.’s southernmost city, had real estate sales grind to a standstill during the most recent recession. Now, as the economy picks up, property sellers are finding out that a buyer will not have to pay the $800 per year flood insurance premium in place previously, but instead an immediate jump to $8,500 per year. That adds almost $650 each month to the cost of the property. In many cases, the seller will be hard pressed to find a buyer for the property.

The other side of the argument is also easy to understand. Each year, the remainder of Americans will no longer pay to subsidize the benefits by a few. In reality, flood plains are not just along the coast lines where property values soar to get an ocean front view. Flood plains are also in many low lying areas, along rivers, marshes, and other lands where crops grow poorly. It was here that many “common” people were able to buy land and build the home of their dream. Over the years, communities developed, drainage improved, jobs prospered, and many of these properties sold over and over, were redeveloped, and became residences to middle class families with no idea of the financial perils of living in a 50-year flood plain. They paid their reasonable annual flood insurance policy, raised their families, went to work, and never worried about a problem such as this. For these families, the biggest problem on October 1, 2013 was not that the government shut down, it is what the government had done before it shut down.