I have first hand knowledge of what John Englander is
writing about in his book High Tide on
Main Street. As a real estate
broker and property owner in Galveston, Texas for the past 20 years, I have
seen homes 2 blocks away from the ocean become beachfront property. The joke in
many beach towns is “buy 3 blocks from the ocean because within 10 years you
will be beachfront.” The same thing is happening in Florida and all other states
that have a coastline. What John
Englander is talking about in his book is not a description of a possible
future in a far away land; he is talking about here and now.
Where a homeowner once had a prime piece of beachfront property,
they now own the land the waves crash over. It is real estate litigation at its
worst: the government against the homeowner determining who now owns the land.
The post-Sandy reality for many families will not be a
question of when and where to rebuild but be a no-rebuilding-allowed option..
The physical displacement of the coast and the homes that once stood there is
heart wrenching, but they make up only one side to this story.
There is the obvious economic side of rising waters and
natural disasters, and this is the side of the equation that gets touchy. If
you don’t live in one of these areas, you have to ask why anyone would take the
financial risk of building in an area that could flood. The answer? The government encourages
it with your tax dollars. You and fellow taxpayers are the ones paying the
bill. You see, taxpayers are subsidizing a stranger’s luxury of having a home
on beach or that lake front view. These homes are insured by the Federal Government
through National flood insurance programs, and in some states like Texas, they
are further insured with state taxpayer subsidized plans called Wind Insurance
policies. Both are available at a hugely discounted rate. Why is the government
in the insurance business? Because
Insurance companies would never take such a high risks because they know there
is no question as to if they would have to pay. They are just watching the
weather channel, waiting for the next big storm, and are glad they don’t have
to pay pick up the tab.
So why have the values of these properties that are prone to
hurricanes and flooding not gone down?
Well, the answer is: it depends.
If you are in an area that is subject to flooding and requires the
federal government to insure your property, values are typically less.
The exception to the rule is
beachfront property.
After each natural disaster, the supply of these lots diminishes, and
when you are wealthy and the federal government is subsidizing your insurance, you
are in a no lose position.
Why should the taxpayer, a group made up of all income
levels and property owners, continue to subsidize insurance for extremely
high-risk real estate, commonly owned by the wealthy? ABC News Commentator,
John Stossel, compared the Federal subsidizing of coastal properties with subsidizing
car insurance for drunk drivers. Not only do the government’s policies seem to
reward hazardous living, but have consequently encouraged it to the tune of
$645 billion in federally insured and guaranteed property. If you, as a
taxpayer, have ever dreamed of investing in high-end property along the beach,
your dream is now a horrifying reality. You have been paying to insure millions
dollar properties for years. The federal guarantee of insurance does more than
simply foster the increase of coastal living and home building among the elite,
it is an economical boomerang that will inevitable come back to hit the
government where it hurts…your pocketbooks!, The problem is the government’s National Flood Insurance Program is broke, and
their credit line is almost all used up. Because of this, premiums are set to
double over the next 5 years.
Those that have this insurance complain about the cost, but it is a
bargain compared to its cost on the open market
As these premiums go up, the effect will be felt in the non
high-end properties, making there values decrease. A $1000 premium increase in
insurance does not affect the $2 million dollar home but does effect the
$250,000 home. And if the Federal government ever decides to get out of the
insurance business, these properties will instantly drop in value. It will be
the equivalent of owning property with toxic waste.
As John Englander has pointed out in his book, High Tide on Main Street, we are seeing
more flooding with less severe storms.
A category 1 storm now floods an area like category 4 hurricanes did in
the past. Why? Because higher storm surges go along with even the tamest weather.
If Hurricane Katrina, Ivan, and Ike aren’t sufficient proof of the power of storm
surges, Sandy is the poster child. Storm surges will only get worse as sea
levels will continue to rise. We are seeing properties that had never flooded
now suffering every 2-3 years. The values of these properties will continue to
decline, and more and more areas will be zoned in the flood plain. And once they
are in the flood plain, they never come out! Properties in flood areas have two huge issues going against
them:
- Higher insurance premiums
- More prone to flooding
As Englander states in his book, “ PROPERTY VALUES WILL GO
UNDERWATER LONG BEFORE THE PROPERTY ACTUALLY GOES UNDERWATER.”
II was curios why cities and states don’t do something to
prevent or try and minimize the flooding.
They can’t control the sea level so why not try and reduce the damage. Most
municipalities after a storm like Sandy are so concerned with getting life back
to normal that any future planning for prevention is put on the back burner.
After storms and floods, infrastructures are repaired in the fastest possible time
table with little thought to the future.
After Hurricane Ike, Galveston, Texas realized they had to
do something. They spent
over $250,000 studying prevention plans and for a city of 50,000 that is a huge
expense. These studies developed in a proposal to build the “Ike Dike” to
reduce storm surge impact on the island. After Sandy, Galveston no longer believes
it will be a recipient of any protection from future storm surges because the
federal government will protect more ‘valuable’ cities. Why should local
govt. invest in research that the fed will use to protect other cities? They can’t afford it.
While the current news about Sandy is all about meeting the basic
needs of East Coast residents, in a few months, a new issue will be making
headlines. It is an issue that most southern coastal states have had to deal
with because of the hurricanes in the past years: the rising tide. The tide rising is not something in the
far distant future; it is here. The
infrastructure and prevention side needs to be addressed because the affects on
homeowners are already being felt.
