After years of mounting losses from hurricanes and rising water levels, the federal flood insurance program will begin phasing out subsides starting on Oct. 1.
The long-sought changes to the National Flood Insurance Program are designed to shift the cost of owning properties in flood-prone areas onto homeowners and are part of an effort to encourage development away from coastal areas that have been battered by flooding-related disasters.
In some cases, houses are being razed after repeated cycles of storm damage and rebuilding proved costly.
Coastal homeowners, especially those who own large properties, will most likely see their insurance premiums increase.
Flood insurance has been subsidized by the federal government for decades to encourage coastal development. The subsidies make it less expensive and lower the risk for owning coastal properties, leading to more development in flood-prone areas.
But as the frequency and severity of storms and floods have increased, local and state governments and environmental groups have sought to reduce what they view as a subsidy for building in vulnerable areas.
The cost of the damage from the flooding has only grown as flood insurance claims and claim values have increased since 2000.
At the same time, housing prices in flood-prone areas have been rising at a faster rate than the national average, in part thanks to federal subsidies. In Miami, for example, developers have continued to build luxury buildings on the waterfront even as the city experiences rapidly rising sea levels and flooding during high tides.
In the long run, demand for properties in coastal areas might fall as the cost of coastal home ownership rises because of rising flood insurance premiums.
This may lead to pivoting development away from the coasts to areas that are less prone to flooding such as Denver or Phoenix.
The takeaway
Changes in federal flood insurance mean it will be more expensive to own properties, particularly high-end real estate, in coastal cities. Over time, the added cost might mean residential real estate development will move away from coastal areas to inland locations.
