Cost of insuring waterfront homes is about to go up
Florida’s version of the American dream, which holds that even people of relatively modest means can aspire to live near the water, depends on a few crucial components: sugar-white beaches, soft ocean breezes and federal flood insurance that is heavily subsidized.
But starting Oct. 1, communities in Florida and elsewhere around the country will see those subsidies begin to disappear in a nationwide experiment in trying to adapt to climate change: Forcing Americans to pay something closer to the real cost of their flood risk, which is rising as the planet warms.
While the program also covers homes around the country, the pain will be most acutely felt in coastal communities. For the first time, the new rates will also take into account the size of a home, so that large houses by the ocean could see an especially big jump in rates.
Federal officials say the goal is fairness — and also getting homeowners to understand the extent of the risk they face and perhaps move to safer ground, reducing the human and financial toll of disasters.
“Subsidized insurance has been critical for supporting coastal real estate markets,” said Benjamin Keys, a professor at the University of Pennsylvania’s Wharton School. Removing that subsidy, he said, is likely to affect where Americans build houses and how much people will pay for them. “It’s going to require a major rethink about coastal living.”
The government’s new approach threatens home values, perhaps nowhere as intensely as Florida, a state particularly exposed to rising seas and worsening hurricanes. In some parts of the state, the cost of flood insurance will eventually increase tenfold, according to data obtained by The New York Times.
For example, Jennifer Zales, a real estate agent who lives in Tampa, pays $480 a year for flood insurance. Under the new system, her rates will eventually reach $7,147, according to Jake Holehouse, her insurance agent.
And that is prompting lawmakers from both parties to line up to block the new rates, which will be phased in over several years.
“We are extremely concerned about the administration’s decision to proceed,” Sen. Bob Menendez, D-N.J., and eight other senators from both parties, including Majority Leader Chuck Schumer, D-N.Y., wrote in a letter Wednesday to Deanne Criswell, administrator of the Federal Emergency Management Agency.
‘Our new, wet reality’
Created by Congress in 1968, the National Flood Insurance Program is the primary provider of flood coverage, which often is not available from private insurers. The program is funded by premiums from policyholders but can borrow money from the federal treasury to cover claims.
The average annual premium is $739. Until now, FEMA, which runs the program, has priced flood insurance based largely on whether a home is inside the socalled 100-year flood plain, land expected to flood during a major storm.
But that distinction ignores threats like intense rainfall or a property’s proximity to the water. Many homeowners pay rates that understate their true risk.
The result has been a program that subsidizes wealthier coastal residents at the expense of homeowners farther inland, who are more often people of color or lowincome. As climate change makes flooding worse, using tax dollars to underwrite waterfront mansions has become increasingly hard to defend.
In 2019, FEMA said it would instead price flood insurance based on the particular risks facing each individual property, a change the agency called “Risk Rating 2.0.” After a delay by the Trump administration, the new system takes effect next month for people purchasing flood insurance. For existing customers, rates will rise starting in April.
Staggering costs
But the financial consequences of that new reality will be staggering for some communities.
The flood program insures 3.4 million single-family homes around the country. For 2.4 million of those homes, rates will go up by no more than $120 in the first year, according to data released by FEMA — similar to the typical annual increases under the current system. An additional 627,000 homes will see their costs fall.
But 331,000 single-family homes around the country will face a significant rise in costs.
More than 230,000 households will see increases up to $240 in the first year; an additional 74,000 households will see costs rise by as much as $360. For about 25,000 single-family homes, additional costs could reach as high as $1,200.
Almost half of those 25,000 households are in Florida, many of them along the string of highrisk barrier islands that run from St. Petersburg south to Fort Myers.
Because federal law prohibits FEMA from raising any homeowner’s flood insurance rates by more than 18 percent a year, it could take 20 years before some current homeowners are charged their full rates under the new system.
FEMA declined to make public the full amount of the rate increases that homeowners will pay over time. But insurance brokers are able to see those costs for individual homes, and they are far greater than the initial increases discussed by FEMA.
Holehouse, who in addition to selling insurance is also a flood insurance advocate for St. Petersburg, said it was misleading for FEMA to disclose the price changes for only the first year of the new rate schedule.
“I want to talk about five to 10 years from now, because most people take a 30-year mortgage,” Holehouse said.
Pay more or move out
Just south of Treasure Island is the small town of St. Pete Beach. Melinda Pletcher is a town commissioner. She worries that as insurance costs go up, home values will fall, even as people who cannot afford rising insurance costs will be forced to move.
“The people who are building or buying the houses that have $1 million in value, they don’t care,” said Pletcher, whose own rates are going up from about $500 a year to almost $4,500. “People that have been living here for 40 years, they end up not being able to afford to stay.”
Zales, the Tampa resident whose rates are set to eventually exceed $7,000, said she is lucky that she can afford to pay that much. For new buyers, that kind of increase will push mortgage lenders to reconsider how much money borrowers can afford to repay each month, Zales said. Future homebuyers “may not qualify for as high a loan,” she said.
Homeowners with a federally backed mortgage are legally required to carry flood insurance. Those who have paid off their mortgage, or did not need one in the first place, face a different dilemma under the new system: Whether to pay the new, higher rates or risk living without coverage.
‘Tell people the truth’
The rate hikes around Tampa Bay are unusual, according to FEMA. Most homeowners will see much smaller increases, and many will experience a decrease — the first time in the history of the program, the agency said.
As for those who may be forced from their homes by rising rates, the agency noted that it has long urged Congress to offer financial help to lower-income residents — a more targeted type of assistance than simply subsidizing policies for most homeowners regardless of income.
“For the first time, our policyholder premiums will be based on their individual risk,” said David Maurstad, who runs the flood insurance program at FEMA. “We pledge to continue to evaluate and make adjustments where and when it’s warranted.”