Home Sales and Water Levels are On The Rise in Flood Zones
Written by Abigail Bailey and Dr. Guanchi Zhang
Sea levels are rising in the United States, and so are home sales in flood zones. Although some buyers enter flood zone transactions happily with their eyes open wide, many are manipulated into a financial burden under the guise of an investment. Instead of protecting vulnerable buyers, the government is often the seller and beneficiary. Both the emotional and financial loss of homes destroyed by sea level rise increasingly falls on those least able to tolerate it.
There are primarily two types of people buying houses in flood zones. The first category is wealthy, older individuals who imagine that they will not live long enough to see flood damage become a problem. These people generally want to live out their golden years in the coastal home of their dreams. In historically desirable areas like the Isle of Palms and the Florida Keys, home values stay high as this category of older people continue to buy homes that come on the market. As the occupants pass away and the land floods, the market may crash for this type of home. In the meantime, wealthy older people keep buying coastal houses at high rates, and the property values stay high.
The second category is more troubling. Low-income buyers are increasingly purchasing homes in flood zones. Income and education disparities, cultural and language barriers, and climate change collide in an unfortunate way in the flood zones that lack palm trees and azure seas. Government programs intended to protect disadvantaged people in these areas instead pull them into the trap. There are many ways this issue is compounded.
Income and education disparities drive people to buy homes in flood zones. Unless the flood zone area has been historically desirable, repeated flooding will decrease the property value. At the same time, people in flood zones must buy flood insurance, which can range from $350 to $10,000 per year. Homeowners in a flood zones are often required to purchase this insurance from the government and get a U.S. Department of Housing and Urban Development (HUD)-backed mortgage. When a homeowner cannot afford the flood insurance along with a mortgage and any flood damage repairs, the houses are foreclosed and sold at foreclosure sales below market value. Foreclosure sale prices are attractive to low-income families striving for homeownership. The process of selling houses below market value without disclosing the full cost of ownership, then foreclosing the homes and repeating the process, places homes in flood zones in a feedback loop until their eventual destruction. The repetition comes at the expense of low-income families striving to improve their circumstances.
Instead of preventing unfair home sales to low-income families, the federal government often acts as the seller in these transactions. HUD disproportionately sells homes in flood zones. Between 2017 and 2020, HUD sold houses in official flood zones at 75 times the rate of houses outside flood zones. HUD even sells homes in neighborhoods the city has marked for buyouts and evacuation. HUD justifies this by claiming their duty is to sell houses in their inventory and preserve neighborhood character, a nonsensical idea in a neighborhood marked for destruction.
HUD and other sellers rarely disclose the full extent of costs associated with owning a house in a flood zone. Many buyers do not realize they need to purchase flood insurance until they have committed too deeply to the transaction to back out. Some states require mandatory disclosures for certain risk factors in real-estate transactions. Generally, sellers are advised to disclose anything that might be a risk factor, even when uncertain if disclosure is required. Despite this, many states do not require adequate (or any) disclosures regarding flood zones and flood risks. Mandatory disclosures remain inadequate for both private sellers and HUD.
That said, the burden on sellers to obtain and disclose relevant information about their homes is high. Sellers may not be able to bear the full cost of determining whether their home is, or will soon be, in a flood zone. Not all sellers in flood zones attempt to pull wool over the eyes of a disadvantaged buyer. Not all sellers in flood zones are even aware of the risks to their property. Establishing an unfettered disclosure requirement for sellers or establishing an unfettered right of action to sue for buyers would likely only lead to deadlock in the housing market. It is unfair for either the private buyer or the private seller to bear the entire cost of flooding.
HUD, however, is not a private seller, but a government agency created to benefit the people. HUD still fails to disclose the full risk of flooding in its property sales. HUD defends its actions by claiming that any person can get adequate descriptions of flood zone risks on the Federal Emergency Management Agency (FEMA) website. Likewise, states often do not require mandatory disclosures of flood zone information in private sales because the information is publicly available. This is where a disparity in sophistication becomes relevant. A less sophisticated buyer may not realize they need to investigate the flood risks for their home. A basic home inspection is not likely to explain the full extent of flood risks. Some guides provide advice on how to research the true flood risk of your property but the process is not straightforward. Even if a buyer can get a full picture of the costs and risks associated with flooding in their home, flooding factors are likely to change and get worse over time.
Disparity of income and education is compounded by language and cultural barriers. People who struggle to understand English may not be given a real estate contract in their native language. They also may struggle to navigate research on English language and American government websites like FEMA and are unlikely to have the resources to hire an agent to research for them. Some immigrant communities are likely to be debt-averse, wishing to buy homes in cash. These individuals are more likely to buy inexpensive homes to avoid a mortgage.
Homeownership is a part of the ‘American Dream’ and deeply engrained in American society. Homeownership helps accumulate generational wealth. But houses in flood zones defy this assumption. Homeownership in flood zones leads to expenses that outweigh the financial benefits, because of flood insurance, water damage, and other difficulties. The home cannot be passed down through generations because it will ultimately be destroyed by flooding. Both private sellers with a high level of sophistication and the federal government realize that homes in flood zones are a liability, rather than an investment. Increasingly, these homes are sold off, so that the cost of their loss is borne by those least able to afford it.
It is difficult to find solutions to adapt the real estate market system to flood zone areas. Increased burdens on the sellers to disclose information and increased burdens on buyers to prove their ability to afford the cost of the houses seem like attractive solutions at first glance. Although requiring clear warnings about flood risks and costs in real estate transactions would be helpful to reverse this trend, the issue must be handled carefully. Neither private buyers nor private sellers always have the means to bear the entire cost of flood damage. Fear of bearing the cost may lead to both buyers and sellers halting their sales. Additionally, as the federal government points out, increased requirements for buyers to prove their ability to afford houses in flood zones might lead to redlining and unfair exclusion along racial and socioeconomic lines. In a housing crisis, all are loath to restrict more areas of inexpensive housing. The answer is not to refuse access to these areas for low-income communities, but to ensure that the cost of the loss is not borne by poor and disadvantaged communities. If anything, communities and people in flood zones are performing a public service, by occupying houses that are, from time-to-time, damaged or unlivable. People performing a public service should not also bear the costs of property loss due to flooding.
Author Bios
Abigail Bailey is a 3L student at Vermont Law and Graduate School, intending to pursue a career in Environmental Law. Abigail grew up in New Hampshire and studied in New England but now lives in South Carolina. Abigail is currently an intern at the South Carolina Department of Environmental Services Bureau of Coastal Management and a senior staff member on the Vermont Journal of Environmental Law. Besides being a J.D. candidate, Abigail holds a B.S. in Biology from Plymouth State University, an A.A. from Bard College at Simon’s Rock, and a certificate of completion from the Williams-Mystic Coastal Studies program out of Mystic, Connecticut.
Dr. Guanchi Zhang is an assistant professor of law at Vermont Law and Graduate School, specializing in property law, state and local government law, as well as planning and land use law. Guanchi’s research explores critical urban institutions and their impact on growth and inequality in contemporary cities. His work has appeared in journals including Political Geography, Law and Social Sciences, and Public Law Study, and won a paper award from the American Association of Geographers. He also contributes to the Fairbank Center for Chinese Studies blog at Harvard University. He holds an SJD from Harvard Law School, where he was awarded the F.Y. Chang Fellowship, Dean’s Scholar Prize, and Harvard Certificate of Distinction in Teaching. He received an LLM, an LLB, and a B.Econ. from Peking University in China, Beijing