Carolyn Kousky is director of the Policy Incubator at the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania. Her research has examined disaster insurance markets, the National Flood Insurance Program, federal disaster aid and response, and policy responses to potential changes in extreme events with climate change.
We have good data about flood risks. The challenge is getting it to people when they need it, in a way that’s useful.
For the majority of Americans, their home is the biggest purchase they will make and the largest contributor to their total net worth. And for renters and owners alike, our homes represent security and sanctuary.
Few people would choose to live somewhere they knew would be flooded with unsanitary water, sending mold up the walls. Few would choose a home where repairing flood damage would send them into debt, or replacing damaged contents would be a financial hardship. Few would buy a home where increasing risks would drive down its value.
We may not need information on the risks of flooding very often. But we certainly do when we’re deciding where to live or whether to move.
An economist will say that for markets to work efficiently, participants in that market need full information. Without it, they make decisions that are suboptimal. When it comes to housing markets, buyers and renters do not get the flood-risk information they need. There are five main ways that the current system fails them.
1. The federal government and housing markets wrongly suggest that flood risk is a yes/no question.
It is federal law that federally backed or regulated lenders require flood insurance on property loans in “Special Flood Hazard Areas.” This is a confusing term that means the 100-year floodplain, as mapped by the Federal Emergency Management Agency (FEMA). A 100-year floodplain is where there is at least a 1-percent chance of a flood occurring in any year, or a 26-percent chance of a least one flood over the course of a 30-year mortgage. Lenders disclose this information to borrowers prior to closing. Some states also mandate that sellers disclose this information. There are no federal requirements that renters must be informed about flood risk.
Not surprisingly, then, location in or outside a Special Flood Hazard Area has been internalized in housing markets. Many studies have documented price discounts for properties in the 100-year floodplain.
This, though, is the first failure of flood-risk communication. Properties are either “in” the flood zone or they are “out” of it. This creates a false perception that on one side of an imaginary line, homes are safe, while on the other, they are at risk of flooding. But whether a home is at risk of flooding is a matter of degree.
Some parts of the 100-year floodplain are much riskier than others. And there is risk outside the line, too. In fact, roughly a third of all flood claims now occur outside this area, due to more extreme weather events or outdated or inaccurate maps. (Rainfall-related flooding is often not used in drawing the 100-year floodplain on FEMA maps.) Some areas subject to coastal storm surge are not in mapped Special Flood Hazard Areas.
2. People lack information on potential damages to their property.
Today, risk communication focuses almost exclusively on the probability of a flood: Generally, prospective renters and homeowners are not given any information on what losses to expect. So people may have no knowledge about what a flood could mean financially for them. How much structural damage could occur, and how much damage will their contents sustain? Will a flood cause $1,000 of damage, or $10,000, or $100,000? How likely is each of those scenarios? Risk requires us to discuss probability and impact together.
This information also needs to be presented in ways that are easy for people to interpret. For example, how many times has this home flooded in the past? How much damage did it cause? Buyers of used cars are alerted to prior flood damage through a salvage title, but you can’t get this type information for a house. There is no database keeping track of which homes were flooded when, or which homes have had flood damage, and how much.
3. FEMA keeps relevant information under wraps.
Relevant information regarding flood risk—beyond just potential damages—needs to be part of any decision about where to live, but is not available to the public. For example, FEMA keeps a list of repeatedly flooded properties. A property on this list will flood frequently, could have higher flood-insurance premiums, and may have certain mitigation requirements and opportunities. But homebuyers are rarely alerted to this information, and neither are renters. Residents are also not informed of what level of disaster assistance they can expect in the event of a flood (usually little, contrary to public perceptions).
4. Many Americans aren’t aware that their flood risk is increasing.
There are many parts of the country where flood risk is increasing due to erosion, sea-level rise, changes in pervious cover, or changing storm patterns. A nationwide study found that the 100-year floodplain is projected to increase, on average (nationwide), due to both development and climate change. In coastal areas, in particular, many studies predict rising flood risk in coming years.
There are many properties where the flood risk today is not what it will be in the future. This will have financial impacts for millions of households—insurance costs could rise and property values could fall—yet there is no system to inform people of changing flood risks.
5. The information we need is not where we can easily find it.
In recent years, multiple private, non-profit, and governmental tools have become available to assess climate-change-induced flood risk at the property level, both inland and on the coast. Although widely used by analysts, these tools are not integrated into the platforms that Americans use regularly when looking for housing.
It is unrealistic to expect average renters or homebuyers to know about or seek out this information on their own. It ought to be integrated into information sources they are already using—the multiple listing services that feed listings to sites such as Zillow and Redfin.
Flood-risk information needs to be fast, easy, and free. It should be available on demand—so you can pull it up on your phone while touring a new house or apartment.
As a society, we have good information and data about flood risks. The challenge is getting it to people who need it, when they need it, and in a way that is useful.
We have the technology to integrate flood risk into every home sales and rental platform. With data gathered from satellites or home inspections, local governments could maintain online public databases showing which properties sustain flood damage. The NFIP and local governments could require disclosure concerning repetitive-loss areas. Legislators could strengthen flood-disclosure laws so they are more helpful to homebuyers, such as by requiring disclosure of prior flood events or potential damages.
There are hurdles to these solutions, but they are not insurmountable. With the right public-private partnerships, they are achievable in the near term. And as this hurricane season makes clear, we don’t have any time to lose.