Real Estate: The Dove After the Flood

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Once again it’s that happy time in Washington. Already we hear the cry of “To the Battlements!” from the National Association of Realtors (NAR), and particularly the state associations in Florida and Texas.

Yes, my friends, the Federal Flood Insurance program is up for reauthorization. This is a government program that provides subsidies (i.e., reduced insurance rates) for homeowners who live in areas at risk of flooding. Now, we all know that hardly ever happens here, especially not down to Las Olas Isles during a king tide. (That’s a joke, people.)

Roughly five million homeowners in the U.S. have flood insurance. Thirty-five percent of the policies are right here in Florida, with a concentration in the zone of coverage of this paper. The next largest chunk is in Texas, which recently had a small issue with a large coastal storm.

Now, of course, I am a Realtor and am further on the board of directors of the Florida Association of Realtors (FR). I am a good scout. NAR and FR strongly support reauthorization of the flood insurance program. I believe, at present, that makes sense.

For now.

But I view my role as a Realtor leader more expansively. As I said recently, I want to be a thought leader – the grain of sand inside the oyster that helps produce the most beautiful pearl.

In this column and the next, I will suggest in outline form a longer term framework to consider for this program, beyond kicking the issue down past the next electoral cycle (the typical approach). As the real estate industry approaches radical change (as I mentioned in my last column) we have an opportunity to lead from the front. We understand (or claim to understand) home ownership and property rights issues better than anyone.

The current flood insurance program is well more than $10 billion in debt. I heard the former Florida state director of FEMA say a couple years ago, “If you exclude Katrina and Superstorm Sandy, we are fine.” Well that’s sort of like saying, “If you disregard my terminal cancer, I am in perfect health.”

You see, unlike private insurers, the flood insurance program does not have what is called “reinsurance” (basically insurance that insurance companies purchase to cover catastrophic losses). The effective reinsurer of the flood insurance program is the Federal Government (i.e. taxpayers everywhere).

Taxpayers in the other 48 states (and more importantly their representatives in Congress) might become increasingly reluctant to want responsibility for what they may (perhaps rightly) see as a parochial issue. Regardless of who or what is the cause, sea levels are rising. We already see the potential impact of that in South Florida. The vast majority of scientists (as opposed to the politicians) believe it will get worse over time, not better.

We just had the 25th anniversary of the devastating Hurricane Andrew. A recent study estimated that if a hurricane like Andrew hit Florida today, just a few miles to the north of where it made landfall, given the rapid development here over the last 25 years, the damages would be in excess of $200 billion.

Yes, for now, we need to extend the program. But we also need to re-envision it. No, we can’t just eliminate it outright and tell millions of people that they are now on their own. People made long term financial decisions on the assumption that the flood insurance subsidy would exist, and for longer than their duration of ownership. It thus, implicitly, becomes an asset of the homeowner, capitalized into the value of their property. And if you believe in the Constitution, the government cannot take property without due process and compensation.

Fortunately, there is a solution that will also solve another issue of interest to both the Realtor community, and society. And that will be the subject of my next column.

James Oaksun, Broward's Real Estate Geek(SM), is Broker-Owner of New Realty Concepts in Oakland Park. In addition to having degrees from Dartmouth and Cornell, he is a Graduate of the Realtor Institute (GRI).


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