Christopher Flavelle at The New York Times writes that the cost of owning a property close to the water is about to get a lot more expensive…(New York Times)
BACKGROUND: The National Flood Insurance Program was created in 1968 and is the primary provider of flood coverage. It is priced largely on whether a home is located inside the so-called 100-year flood plain, land expected to flood during a major storm.
- While it was created with the best of intentions, the problem with the program is it ends up subsidizing wealthier coastal residents at the expense of homeowners further from the water. As a result, demand for houses in high-risk areas has increased because the true cost of ownership has been reduced.
THE CHANGES: Starting Oct. 1, those purchasing homes in communities closest to water will see much higher flood insurance premiums. For existing customers, rates will rise starting next April.
- This is not a trivial increase. The Times talks to Jennifer Zales, a real estate agent who lives in Tampa. She currently pays $480 a year for flood insurance. However, under the new system, “her rates will eventually reach $7,147, according to Jake Holehouse, her insurance agent.”
SILVER LINING: The new system of determining rates will not kick in all at once. The Times reports that for 2.4 million homeowners, rates will go up by no more than $120 in the first year. However, “230,000 households will see increases of $120 to $240 in the first year; an additional 74,000 households will see costs go up between $240 and $360. For about 25,000 single-family homes, costs will jump between $360 and $1,200.”
- About half of policyholders won’t see the full increase in their rates for at least five years; some may not see it for nearly 20 years.
HOT TAKE: It’s important to remember when are talking about very wealthy people who have very strong political connections. The Times notes that something similar was proposed almost ten years ago and was then reversed a few years later. The wealthy are not going to like seeing their flood insurance premiums skyrocket. But the rise of populism on both sides of the aisle might make it harder for politicians to allow the federal government to keep subsidizing million dollar beach houses even if it costs them campaign donations…