When Georgia was ravaged by floods in September of 2009, my home had nearly $25,000 in water damage to the roof, interior walls, and hardwood floors. I had insurance. If the water had hit the ground and then entered my house, my standard insurance policy would not have covered it. I would have needed to purchase a flood-insurance rider.
Homes built in flood zones cannot get insurance. Mortgage companies will not loan money to someone who wants to build a home in a flood zone.
Coastal cities like New Orleans, Myrtle Beach, and the Jersey Shore get the worst of hurricane damage. Some estimates put the damage caused by Hurricane Sandy at $50 billion. “The cost from the previous 20 storms to the federal taxpayer [to Dauphin Island, Ala.] was approximately $80 million for an area of about 1 square mile with only 400 homes.” If the government hadn’t subsidized the rebuilding of these homes, the cost would have been zero. People would have moved.
Authors Rob Young and Andrew Coburn1 get in right when they describe the payout as costing the “federal taxpayer.” That’s you and me. We’re subsidizing people who live in hazardous coastal areas, otherwise most of them wouldn’t be living there.
Once again, our helpful government is in the middle of it all with two programs, the 1988 Stafford Act and the National Flood Insurance Program administered by FEMA. Where insurance companies would not offer insurance for these high risk areas, the government comes in, the same government that created the housing crisis with government-backed mortgages. The cost for the government-subsidized flood insurance is artificially low. What the insurance companies do pay out, they can write it off at tax time.
Then there’s the cost to tax payers to fund beach erosion remedies. “In New Jersey, alone, approximately $1 billion in public funds have been spent just to keep beaches in front of homes and oceanfront buildings.” It seems to me that the people and businesses who want to live so close to a hazard zone should pay the price.
If there is minimal risk of loss because someone else is going to pay for the damage caused by a hurricane, then there is little property risk to build in a hazardous area prone to flooding and storm damage. If people could not get insurance, or insurance was too high, more people would live further inland to avoid the higher risks.
John Stossel writes:
“The insurance, of course, has encouraged more people to build on the edges of rivers and oceans. The National Flood Insurance Program is currently the biggest property insurance writer in the United States, putting taxpayers on the hook for more than $640 billion in property. Subsidized insurance goes to movie stars in Malibu, to rich people in Kennebunkport (where the Bush family has its vacation compound), to rich people in Hyannis (where the Kennedy family has its), and to all sorts of people like me who ought to be paying our own way.”2
I feel for the people who are undergoing hardships because of the hurricane. But it’s time for reassessment once basic needs are taken care of. If people want to rebuild in the same areas, let them, but don’t subsidize the insurance. Let the market determine price. Don’t stick the bill with taxpayers.