US housing market is overvalued billions ignored flood risk

(Bloomberg) — US homes in flood-prone areas could currently be overvalued in the range of $121 billion to $237 billion, according to a report published Thursday in the journal Nature Climate Change.

Roughly speaking, this number is obtained by considering how many homes are currently selling and subtracting the estimated average annual losses they will suffer from flooding over the next 30 years (average mortgage life in the US), as determined by the First Street Foundation, a non-profit organization. which seeks to raise awareness of the risks associated with climate change, such as increased flooding. The report was prepared by researchers from First Street, the Environmental Defense Fund and Resources for the Future, among others.

The study found that the value disparity was particularly large in coastal counties where disclosure of flood risk is not required in real estate transactions. While high-end homes along Florida’s Gold Coast account for the largest portion of the absolute valuation difference, low-income households are at risk of losing the largest share of a home’s value.

“The implications of this financial risk and the response of the housing market really depend on policy choices about who bears the costs of climate change,” said Jesse Gurevich, a fellow at the Environmental Defense Fund and lead author of the report. “It’s really important that flood risks are better communicated to property owners.”

It has long been known that flood risk is not adequately assessed in home or flood insurance. In many cases, buyers are simply unaware of this because federal government risk maps are outdated and difficult to access. In addition, state laws differ on how high the risk of flood disclosure is when selling homes.

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In addition, lower costs in the short term tend to encourage buyers to underestimate the likelihood and severity of floods over time. Historically, the federal government has helped and encouraged this risky decision-making through subsidized flood insurance.

First Street has attempted to make risks more transparent in 2020 by publishing its own flood risk analysis for every property in the lower 48 states.

This article builds on that data by estimating how much of that flood risk is now built into home values ​​and how much is not. The researchers found that the market has taken some of the risk, but up to $237 billion is still outstanding, most of which is in states like Florida, where not only does flood risk increase as the climate warms, but it’s usually not required. to enable sellers to share the risk of flooding with potential buyers.

The distribution of revaluation is strongly biased towards expensive properties – 11% of properties contribute to 80% of the revaluation. The researchers found that much of the overvaluation is due to properties that do not fall within the severe flood zones specifically designated by the government.

While a few high-value properties carry more risk, the study found that among census tracts in the lowest household income quintile, a higher percentage of properties are overvalued relative to their flood risk. If they are depreciated to match the real risk, homeowners could lose up to 10% of the value of their homes.

To contact the author of this story:
Leslie Kaufman in New York at

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