A Flood of Folly

by Tim Kern
[Posted on Friday, December 30, 2005]

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Economic ignorance rises to the top: that seems to be one explanation for FEMA's continued support of building in flood-prone areas, and Congressional demands for FEMA to do even more of the same.


A Washington Post story (Oct 11, 2005 ) by Gilbert Gaul noted, "The pattern of federal flood payments on Dauphin Island [AL] illustrates the growing share going to properties that get hit over and over. Federal data show that 300 buildings with multiple losses account for more than two-thirds of all flood payments the town has ever received — $21.3 million. Katrina claims could add tens of millions."

Gaul continued, "Nationally, properties with multiple losses account for about 25 percent of the flood program's losses while representing 2 percent of all insured property."

Now, if we are learning any lessons at all, we shouldn't be insuring two-time loser properties, especially when those risks are underwritten by the very people who have enough sense to stay away from hurricane magnets like Dauphin Island, namely the rest of us.

If the builders on that island (and countless other coastal properties, from Brownsville to Boston, and beyond) can't afford private insurance, they need to reassess their plans. They shouldn't expect "the federal government" to pay for their folly. Sure, they pay premiums to FEMA, but those payments are obviously below market value (else the market would take care of the insurance and their would be no rationale behind FEMA's involvement).

An Eric Lipton story in The New York Times (December 11) further noted the clash between FEMA's new demands and the insured residents' wishes. One 69-year-old lady he interviewed doesn't want to have to rebuild her Mississippi Gulf Coast home on FEMA's newly-required stilts. She doesn't want to climb that many stairs… but she still wants FEMA to insure her rebuilt home.

Lipton notes that FEMA's rules won't be final for a year or so, but adds, "During this critical rebuilding period, it is up to the local governments to decide if they will honor the agency's request to adopt the more conservative and more costly standards." He says that "when the maps become final, the federal agency will have the power to force the hands of local governments, since it can ban cities and their residents from the flood insurance program if they do not respect the official maps."

There's good news here, and bad news. First the bad news: most local governments will no doubt capitulate to FEMA. The good news, though, is worth examining.

* People may not return to the flood-prone areas that the market would not insure at a reasonable price in any case. That would be good for everyone.
* FEMA may have fewer people to insure, and those FEMA does insure will be better-equipped to survive the next storm. Though governmental power will increase in this case, it will not increase as much as it would had FEMA carried on as it always has.
* Local governments may get fed up with FEMA's heavy-handedness, and a tiny revolt against additional governmental incursion may result (much as has happened in the wake of the Kelo decision, which gave a pass to governments to seize property in the name of the "public interest").
* Delays in FEMA approval, coupled with lenders' reluctance to finance uninsured rebuilding, may induce some to move away — to some area where the next flood or hurricane won't destroy their homes.

The government should not be subsidizing insurance payments for anyone; and it's irresponsible to use other people's money to effectively encourage stupid people (who else builds in flood-prone areas?) to do ever-more-stupid things. Granting the natural right to behave stupidly, doing so should not come at other's expense.

Beyond the obvious, the federal government's insuring anybody for anything is a conflict with what's left of free enterprise in the insurance sector. Private insurers provide a measure of "concept-checking," as people consider building in risky places; having FEMA supply below-market-rate insurance merely encourages uneconomic behavior, lowering the costs of that behavior.

What would be the worst thing to happen if the government didn't subsidize people's insurance? You'll need to pick from these, and a few others:

* Middle-class people would stay away from flood-prone areas. Rich people could afford private insurance, making their vacation spots even more-exclusive. Poor people could afford the land, balancing their risk with the opportunity for cheap accommodations. Like in Haiti, except by choice, with other opportunities.
* Insurance rates for all homeowners would drop, because the rich would be paying their own way, and the poor wouldn't be expecting handouts.
* Property values inland would rise, yet property on those tracts would be easier to insure, and at lower cost.
* Fewer people would ultimately be affected by the floods. The middle class wouldn't be there in the first place, making voluntary evacuation (of the resultant smaller population) less problematic.
* Rebuilding costs would be lower, as the rich would have enough insurance, and the low-cost housing would either not be rebuilt, or would be built in such a way that a catastrophe would not be as expensive the next time.
* Local governments in flood-prone areas would have fewer obligations to the federal government. They would be able to govern in the way that best suited the citizens of the area. Paperwork and staff could be cut, freeing more people to do honest work. Government expenses would plummet.

There is nothing wrong with anyone's building wherever he or she wants. But it is my job (or your job) to make it easier for them to set themselves up for a fall.

If the economies (and government coffers) of Dauphin Island and other flood-prone places suffer because people don't rebuild there, that's too bad. With fewer residents and properties to regulate, they couldn't claim the need for so much money, anyway.

And maybe people should pay their own way to live where they want, whether it's in a sensible place, or some risky venue like, um, places where it floods all the time.

Tim Kern is a writer in Winter Haven, Florida. See his website. Send him mail. Commen ton the Blog.