In the aftermath of the destruction caused by Hurricane Harvey in Houston, Texas, and surrounding towns, many reporters and analysts are studying what went wrong and how U.S. cities might avoid such devastation going forward. Many point to the irony that just two weeks before Harvey’s flood waters hit Houston, President Trump reversed a 2015 executive order that established the Federal Flood Risk Management Standards. Those standards required federal agencies to take climate change and sea level rise into account when building new infrastructure. To mitigate flooding, the rule required that federal agencies draw from the best available climate science before approving new construction projects, otherwise their approval powers would be limited to standard projects (e.g., roads and railways) that are built two feet above the national 100-year flood elevation standard, and critical buildings (e.g., hospitals, fire stations, and critical industry) built above the 500-year flood plain. The order did not regulate private development. The Obama Administration had estimated that the more stringent standards would increase construction costs by 0.25 percent to 1.25 percent, but save taxpayers money in the long run by reducing the need to rebuild federal properties after storms.

A 100-year flood has a one percent chance of occurring in any given year. A 500-year flood has a 0.2 percent chance of occurring in any given year.

Environmental activists, city managers, and some conservatives had urged the Trump Administration to preserve that standard, arguing that it protected critical infrastructure as well as federal investments. Florida Republican Rep. Carlos Curbelo criticized Trump’s decision, stating, “[The repeal is] irresponsible, and it will lead to taxpayer dollars being wasted on projects that may not be built to endure the flooding we are already seeing and know is only going to get worse.”

In addition to Trump’s recent reversal of the Federal Flood Risk Management Standards, in March 2017 Trump also rescinded a 2013 order that directed federal agencies to encourage state and local governments to build new infrastructure and facilities “smarter and stronger” in anticipation of more frequent extreme weather.

Harvey is now the third 500-year flood to hit Houston within the past three years, a trend which many climate scientists believe is linked to global climate change, as the hotter atmosphere causes clouds to absorb more water vapor prior to storms. While Hurricane Harvey was battering Houston, Mumbai, India, experienced monsoon rains that caused similar flooding in that city. In India, Bangladesh, and Nepal, more than 1,200 people have died and millions lost their homes in monsoons this year. Torrential rains in Sierra Leone this summer caused a mudslide that killed over 1,000. Climate scientists predict that as global temperatures continue to rise, events like these will become more intense and more frequent. Extreme weather events are becoming the new normal.

Houston’s roads and buildings were particularly vulnerable to flood damage because of its lack of local zoning laws and building regulations compared to other coastal cities. While the low-cost of housing enabled Houston’s population to grow at one of the fastest rates among U.S. cities (adding 1.8 million inhabitants in the city since 2000), the lack of safeguards ensure the damage from storms will be devastating for homeowners and businesses.


Challenges with the National Flood Insurance Program

Extensive flooding from Hurricane Harvey (Credit: U.S. Air Force, Zachary Wolf)

Flood insurance from private insurance providers can be relatively expensive. In coastal areas, a typical policy could easily cost $5,000 per year, where a regular policy would cost less than $1,000. With most households opting not to buy flood insurance, the federal government has for many years offered subsidized flood insurance policies under the National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA).

The purchase of flood insurance is obligatory for federally-guaranteed mortgages for homes within the 100-year flood plain, but enforcement of that requirement is difficult, and many homes within the 100-year flood plain lack flood insurance. According to Michael Barry, spokesperson for the Insurance Information Institute, an industry trade group, “If the homeowner is not required to buy flood insurance by their mortgage lender, they often choose not to.” He added that there is a widely held misconception that homes that are not in flood plains cannot obtain flood insurance. “Almost all homeowners can get coverage,” he said. It is estimated that fewer than 20 percent of homeowners in the Houston area held flood insurance policies, and the number of homes covered has decreased significantly in recent years.

Homeowners’ losses in Houston will be particularly high because of Houston’s lax building codes and permissive zoning laws. Homes are not required to be elevated in flood zones, and developers are not required to build drainage systems to handle major flooding. Nationwide, a similar trend has taken place: only 12 percent of U.S. homeowners in flood-prone areas were insured against flooding in 2016, down from 14 percent in 2015. Very few homeowners that are not in flood risk areas are purchasing flood insurance. Yet the risk to these homes is that in severe storms, water can flood from drainage sewers into the streets and into basements.

As a result of payments made after the costly hurricanes Katrina in 2005 and Sandy in 2012, the National Flood Insurance Program has had to borrow significant funds from the U.S. Treasury, and as of March 2016, FEMA owed the Treasury over $23 billion. According to FEMA, houses that repeatedly flood account for one percent of NFIP’s properties but 25-30 percent of its claims. Five states, Texas among them, have over 10,000 such households, and that number is increasing rapidly.

Harvey is likely to cost the insurance industry $10-$20 billion according to a JP Morgan estimate, with most of the cost going to commercial insurance carriers. When adding the damage to businesses and homeowners who are not covered by insurance, the total costs to repair the damages are much higher, making it potentially one of the costliest natural disasters in U.S. history. Texas State Governor Greg Abbott has estimated the total economic cost of the storm will be between $150 and $180 billion, surpassing the $120 billion it took to rebuild New Orleans after Hurricane Katrina.


Policy Options

Given the scope of the damage caused by Harvey, many people might call for an expansion of the National Flood Insurance Program so that more homeowners would be able to afford such insurance in the future. However, Omri Ben-Shahar, a professor at the University of Chicago, argues that simply expanding NFIP coverage would be the wrong policy. He argues that ‘it would lead to an even bigger cost to the federal government [and thus to taxpayers] when the next 500-year storm hits,’ which may be sooner than previous theories predicted.

Ben-Shahar suggests that government-subsidized flood insurance has some significant drawbacks because (1) the beneficiaries are not vulnerable low-income residents, but rather affluent homeowners voluntarily living in waterfront and/or seasonal homes, and (2) subsidies create an incentive to develop real estate in devastation-prone areas. For example, in 1992, Hurricane Andrew created $25 billion in damages for Florida residents. Since then, those coastal properties have been redeveloped to the extent that a similar storm today would cause well over double those losses. He further notes that “attempts to reform the NFIP after Superstorm Sandy [which hit in October 2012], and to raise flood premiums to their true risk levels, failed politically.” He argues that we now need to require private insurance companies to impose incentives to build houses on higher grounds or on stilts, and further away from flood plains. This would also “motivate cities to write better building codes and zoning restrictions to reduce local property insurance premiums.”

The General Accountability Office (GAO), an investigative arm of Congress, has stated that the National Flood Insurance Program “faces climate change and other challenges that increase federal fiscal exposure and send inaccurate price signals about risk to policyholders.” In February 2017, GAO recommended that FEMA “improve its NFIP rate setting methods and evaluate approaches to obtain flood risk information needed to determine full-risk rates for properties with previously subsidized rates.” During the ongoing GAO investigation, FEMA has begun to examine the possibility of making changes to the NFIP, but it has not yet taken any action.

Environmental advocacy organizations recommend leaving flood plains undeveloped so that they can absorb water from storms. Such policies also help to protect clean water sources as well as provide parks and open spaces, groundwater recharge, and fish and wildlife habitat. Though real estate developers fight against any new regulations that could increase their building costs, state and federal authorities should consider the long-run costs to society of clean-up and emergency measures after the next storm, along with the costs of rebuilding, compared to the costs of stricter building regulations.

With the effects of yet another catastrophic hurricane, Irma, having caused further devastation in Puerto Rico and Florida just last week, there is clearly a need for concerted action. The federal, state and local governments, the insurance and building industries, and the American people would all benefit from focusing on these issues.


Author: Richard Nunno