Pamela Cruz. Peninsula 360 Press [P360].
Single-family homes in the floodplains -- nearly 4 million U.S. homes -- are overvalued by nearly $44 billion overall, and $11,526 per home on average, according to a new study led by Stanford University.
According to the analysis, published in the Proceedings of the National Academies of Sciences, as the climate changes, more frequent and intense flooding is a threat facing many Americans, while unwitting buyers and inadequate disclosure laws increase financial risks that could destabilize the housing market.
"The overestimation we found is actually worrisome, especially given the increases in climate risk that are looming," said the study's lead author, Miyuki Hino, PhD in Environment and Resources from the Stanford Earth School.
And, according to the analysis, in some states, such as Florida, up to one in six homes is located in floodplains.
As more people have built more homes in areas exposed to cyclones, sea level rise and other flood hazards, flood damage costs have skyrocketed, with total flood damage quadrupling in the country since 2000.
More frequent extreme weather could magnify the trend
Over the next 30 years, flood damage to U.S. homes is expected to increase more than 60 percent, from $20 billion to nearly $32.2 billion a year, according to the nonprofit research group First Street Foundation.
While some states, such as Louisiana, require detailed flood risk disclosures, others do not require risk disclosures of any kind.
Only two states require sellers to disclose the cost of their insurance policy, while most only require disclosures by the time the contract is signed, making it unlikely that buyers will make informed decisions.
Unlike many previous studies, which focused on individual counties or cities in just a few states, the new analysis casts a nationwide net to paint a clearer picture of whether markets are effectively accounting for publicly available flood risk information.
The study also found that single-family homes zoned in a floodplain lose approximately 2.0 percent of their value, which equates to $10,500 for a $500,000 home, or $21,000 for a $1 million home.
In contrast, if buyers had factored in the cost of fully insuring the floodplain home against damage, they should have lowered prices by 4.7 percent to 10.6 percent, as much as 53,000 for a 500,000 home, or 106,000 for a million-dollar home, according to the researchers.
"We like to think that markets work efficiently and incorporate all known information about risk, but here we find clear evidence that the market is underestimating flood risk," Burke said.
Policymakers can help by passing legislation that promotes access to information about the extent of past flooding and strengthens real estate disclosure requirements, according to the researchers.
"We spend a lot of time and energy trying to map climate hazards and how they're changing, and we need to make sure people can access and understand that information when they need it," Hino said.
