How floodplain buyouts work

The US government is buying up and then destroying American homes like this one. Some homeowners in floodplains may voluntarily sell their doomed properties to the government. Since 1989, FEMA has funded something on the order of 45 to 50,000 home buyouts. FEMA is estimated to have spent somewhere around $4 billion on the project so far, but that’s just a fraction of the total amount spent on buyouts since there are programs outside of FEMA. But not everyone is convinced buyouts are a good idea. It’s a bit of a mixed bag. I think in some cases they’re successful and in some cases they’re not. Any person that is moved out of harm’s way is a positive move forward, provided that they’re given appropriate resources to move and to start their lives to do somewhere else. Because there’s so much variation, sometimes buyouts are heartbreaking and sometimes they’re a celebration. Kind of tugs at my heart a little bit. I was there for 17 years. I’m like, they’re going to tear this house that I was living in down. I miss the neighborhood, but I’m happy in this location. It’s not in a flood zone. Buying up homes and demolishing them seems pretty counter intuitive to solving the housing crisis. The US is still short up to 7.2 million homes. We’re talking about a crisis of affordability in the housing across the country combined with the crisis of the climate changes effects. How do we ensure that we provide for our population while making sure that they’re not in harm’s way? So do floodplain buyouts help or hurt American homeowners? And can the US afford to bail out communities? The general way the floodplain buyouts work is that a disaster occurs. There’s damage done to people’s homes, the community, the local government. They decide that it might make sense to offer buyouts to residents in those damaged areas. Most often, the local government and the state then request funding from the federal government. They receive the funding. They make an offer to purchase a home from someone who has a damaged home. That homeowner decides whether or not to sell. If they sell, they relocate somewhere else. The government owns the property, they demolish the home and create open space, and there are almost infinite variations at every single one of those stages I just described. But that’s the really general process. These homes are often located in the floodplain or an area that is deemed likely to flood. One of the most successful bio programs has been in the area near Charlotte, NC where there’s almost 20,000 acres of floodplain. Over 475 homes have been purchased since 1999, relocating over 785 families and businesses outside of the floodplain. My name is Andrea Jones, I’m 59 years old and I work for a bank. So I’ve been in the banking industry for 36 years now and I moved here to start that job and I stayed, didn’t have a reason to, to move back to South Carolina until now. I moved with a buyout program in May of 2023. So ten months now, 11 months now. I do consider myself a member of the Charlotte Mecklenburg community because I still work there and that’s where I do the majority of my shopping. My doctors are still there. I didn’t move any of that because I’m not that far away. So I am still a member of the community. I just don’t live there anymore. The county says 90.5 million dollars have been invested from federal, state, local and other sources and claims it has avoided $40.9 million in losses. Some of the largest programs that support floodplain buyouts are FEMA’s Hazard Mitigation Grant and three programs from the US Department of Housing and Urban Development or HUD. They all come with different requirements and different provisions. For example, from FEMA, the flood buyouts that’s occur for severe, repetitive lost property. So places that have gone through several floods for HUD, for example, if a state chooses after a disaster to use its funds to allow for buyouts, then those homes that went through the flood are eligible. On average, federal buyouts can take two to five years, though 80% of FEMA acquisitions are approved in less than two years. And that’s a long time to wait if your home has mud in it and you’re trying to figure out whether to rebuild or not. And it usually is predicated on which program is funding the buyout. Some buyouts have happened in as little as three or four months, especially when the funding comes from the state or local level instead of the federal. It was a letter sent through the mail and it was sent to all of the homeowners on the street. Within three years of me being in the house was the first time I experienced the heavy flooding. It came up to my mailbox. You could not see the street, you could not see the beginning of my driveway. A couple of years later, the street flooded again because of the pandemic. Finally got everything completed in December of 2022. Signed my contract for them to purchase my house in January of 2023 and then we have to start the appraisal process. Once they did the appraisal, I did a second appraisal. They allow you to get your own. The one thing I didn’t like about that was my appraisal had to include the flood zone and I thought because my house was not in the flood zone when I purchased it that I didn’t have to do that. But they said yes, I do. Once I found a home, the process was easy. I told them when I could move and we scheduled the closing. So the home that I was in, we closed on a Thursday and then I closed on this home the very next day. Andrea said some of her neighbors took the buyout, but others didn’t, especially those who didn’t have a mortgage. The estimates of homes in the United States who are at risk of being flooded ranges from somewhere to between 4 and 41 million by 2100. That’s a big margin of error, but regardless if we’ve spent the last 30 years buying out 45 to 50,000 homes and in the next 80 years we need to do 4 million, we’re nowhere near the scale that would be required. The FEMA grants are funded through a cost share where the federal government provides 75% of the money and the remaining 25% comes from a different agency, the state or local government or the homeowner. In some instances, the 2021 Bipartisan Infrastructure Law can cover 90% of the buyout with federal funds. The non federal funds are generated straight from the tax revenue or income tax revenue. Sometimes they’re coming from a sales tax. There’s a couple communities who put in a sales tax specifically for this issue. Sometimes it’s a bond measure. Sometimes it’s volunteering, volunteering the fire department’s time, for example, to demolish some of these bought out homes or its other voluntary donations in kind of time or services or others that are meeting those requirements. Some communities may not have the funds to support their part of a plan like this and worry the buyouts could chip away at their already stretched tax base downtown. Ship’s mayor says without its Bayside sections, the rural communities already small tax base would be decimated. We’re not going to have any ratables and revenue left. And I, I, I don’t see anything else except bankruptcy. We’re a hurting community in terms of what we are built out. We’re two square miles and every home we knock down, we lose the tax revenues and there’s nothing to replace it. Individual homeowners may also be concerned about how much money they’ll be able to make in the sale. The water was up to here. The idea is that the government will buy the home for the same value that someone could have sold their home on the private market for private sale. But that doesn’t mean every homeowner will be happy with their buyout offer. Right now, the way the market is, it wouldn’t be, you know, it wouldn’t be to our advantage. How much would you lose? At least $100,000. It’s not just our home, it’s our entire life. It’s everything that we’ve worked for and built up to this point that we’re gambling with. Typically going to run into a situation in which the value of the buyout offer is not going to match what it’s reasonably going to cost for the recipient to relocate to a higher, dryer, safer location outside of the floodplain. That could be because the average cost of a house in the US has jumped 3.5% from 2022 to 2023. The house originally sold for $135,000. That was back in 2006. The appraised value was 325,000. So we paid off my the remainder of my mortgage. The new home was 437,000. Obviously values home values gone up. I did buy a nicer home than what I was in. If I’m going to move, I need to get what I want. This house is 3 bedrooms, 2 baths as well, but there is also 1/2 bath. Even though I put a good bit of money down on this house, my mortgage still doubled. I had a 3.62 mortgage interest rate. It went up more than two points. I have a 5.99% interest rate now and then The amount of the house, it was $206,000 for the mortgage, whereas they when I originally bought the other house was 135. The actual execution of the white work is done by the state or local government, and so those local governments can make lots of decisions that are appropriate for their context, how many homes they want to make offers to, how much additional assistance they want to make to help people relocate afterwards, how they use the land after it’s purchased, and on and on. Larger buyout programs can offer additional incentives for the homeowner. For example, the Blue Acres program in New Jersey is able to negotiate lower mortgage rates for buyout recipients when they look to relocate. If a homeowner still holds a mortgage, the balance will be paid off to the bank directly. The land is then deeded to the local government with restrictions on how it can be used. You can’t go in and redevelop. There’s a few very, very small exceptions, like if you made a community garden or a park, you can put a restroom, but that’s basically it. Like that’s, that’s, that’s the level of reconstruction you can do. Ideally, the land is maintained as some sort of public benefit like a park or a swell, which is a depression in the land that can collect floodwaters to protect the other homes in the neighborhood. Some municipalities even create wildlife corridors. Others won’t have the funds to maintain or transform the land and it simply remains A vacant lot. I drove by and took a picture of the empty lot. There’s legal liability associated with owning property generally, and so it ends up in some cases being a fairly significant drain on local resources. That’s why oftentimes, you know localities are not all that keen on buyout activities because they end up with a burden. Not all homeowners in the floodplain are eligible for a buyout, and not all who are eligible will accept the buyout offer. Your times end up with a development pattern that is called checkerboarding. In this checkerboarding effect references sort of a patchwork of homes, some of which have accepted a buyout, some of which haven’t. The current policy movement around buyouts is to try to eliminate that situation to the degree possible. Checkerboarding can create problems like blight, community fragmentation, difficulty with municipal services, and an inability to restore the floodplain to be able to properly absorb water. And then there are things that savvy buyout administrators can do about bundling homes. So maybe you have a home that is a clear win and their next door neighbor is slightly less of a clear win. But if you bought the two of them together, you could make a much better community garden or park. So in aggregate, it makes sense to buy both of them, even though one of them is sort of marginally good and the other one’s great. As a homeowner, you don’t go to FEMA and say I want to buy out or the Hut and say I want to buy out. You go to your local government. They turn around and talk to the state. The state then applies to these federal governments. So in terms of which program you’re under, it’s whichever one your local government got funding from. And that means that the best way for a homeowner to find out is to talk to your local official about those details. The buyouts are meant to keep flood prone homes off the market and can help protect new buyers from making a bad investment. You know, in many places across the country, we don’t have strong flood risk disclosure laws. And so in many cases, homeowners don’t know the flood risk that they’re moving into. And ultimately, you know, the developer can build the development, sell the homes and and kind of move on without maintaining any of the liability associated with the homes that have been built in a flood prone area. New Jersey and New York both passed laws recently to increase flood risk awareness, right. Maybe that’s another piece of this. The number of people who buy homes in states where you’re not required to disclose that the home is at flood risk. Now, you can make an argument if your home is on River Drive next to the ocean, maybe you should know that it’s at risk. But many homes are three roads back and might not know right? Or they think they’re up on a hill high enough and they don’t know that they’re at that risk. Companies like realtor.com now show a homes flood risk directly on the properties listing. But critics question if the US should be bailing out people who made bad investments. I think it is very tempting to say people made bad decisions. They should deal the consequences of them. But that presupposes that we actually have choice. Maybe they bought the home in the 1970s when sea level rise was lower, when storms were not as frequent, when rainfall was less prevalent. They made it under a totally different risk assumption than they are today. For me, had I known that they were going to move the flood zone, or if I’d known that the street flooded the way it did when I moved in, I wouldn’t have done it. And then you’ll have the residents where you think about the low income homeowners. Yeah, there’s an estimate that maybe 10% of government subsidized affordable housing in the US is in the flood plain. And you think about people who are on government subsidized affordable housing, they don’t have a lot of options about where they live. So to say that they chose to live in the floodplain isn’t isn’t really true. And many of these residents could end up using flood insurance from the National Flood Insurance Program, a federally administered option for risky locations where private insurers are reducing coverage. It makes sense for the federal and state and local governments to be investing in buyouts mainly because they may be on the hook for some of the expenses that may be associated with it. So it makes more sense as taxpayers to get rid of a house from the National Flood Insurance Program, take it off insurance rolls because we own the National Flood Insurance Program as taxpayer. At the end of 2022, the NFIP was $20.5 billion in debt because it could not fully pay back debts it incurred paying out claims for catastrophic flood disasters after Hurricane Katrina. We have the federal purse strings that have paid for so many of these buyout programs and have encouraged buyouts in certain harm’s way, but we don’t have. So we have all these carrots, but we don’t have the sticks. We’re not telling people because we can’t at the federal level, tell local jurisdictions, don’t build here, don’t allow development here. Move all these people in this community to other parts of your community. We need to have more of those sticks to be quite honest, to make sure that we’re reducing the number of people in harm’s way. I think in most cases, when there is a catastrophic flood, sort of day one after that flood is when you’re going to have the most support for a larger scale buyout activity. And then as time goes on and people begin to rebuild their homes and move back in, that support can begin to wane over time. And as more time passes following a significant flood, it becomes easier to rationalize the idea that, well, you know, maybe this was a, a, you know, A1 in 1000 year type of flood and it’s not likely to happen again. But that’s a, that’s a, a difficult train of logic to follow given how often we’re having significant flooding events in the United States. And at some point you’re just displacing people out of the community. And then that causes all kinds of other social issues, right, of people being displaced, you disrupt the economy, you disrupt the social fabric. And that’s where it’s probably is worth the buyout to get people out of that. I don’t know, terrible game of hot potato of who’s left holding that home when it loses its value or when it gets that worst storm. There is a little liberation in it. I I do feel that. But when I drive by the other neighborhood, I do have a sense of, oh, I miss it. I miss the neighborhood. I miss my friends. I miss seeing people walking their dogs, standing out, talking with them, having conversations, things like that. But I wouldn’t, I wouldn’t change my mind. I wouldn’t go back. I have no regrets from having made the decision that I made. I would do it again.