The government's hidden housing subsidy for the rich

[Trade]

More good old big government socialism for the well to do. Now let's cut those food stamps.

Since 1968, the federal government has provided subsidized insurance for homeowners who live in flood-prone areas—a program known as the National Flood Insurance Program (NFIP). It was created after a Department of Housing and Urban Development study in 1968recommended the federal government provide flood insurance, arguing that a government insurance program could better balance goals of mitigation and economic development in flood plains than the private market. As of 2016, the NFIP has over5 million policies in force and savespolicyholders around $3 billion annually. But the program is out of control: It is currently $24 billion in debt; future costs will be much higher.

The good news is that Congress has a perfect opportunity to reform the program, since the NFIP must be reauthorized by the end of September. It’s time to implement real reforms that put the program on sound fiscal footing—and reduce this regressive housing subsidy.
The NFIP’s main problem is that it doesn't really function like private insurance. For instance, it does not assess flood risk for each property; instead, premiums reflect average historical losses within a property’s risk zone. Moreover, the floodplain maps determining a property’s risk zone are often several decades out of date. As a result, premiums may bear only a tangential relationship to the true risk of flooding. The cost of an NFIP policy averages about half of what would be a market rate. Congress actually mandates this inaccurate pricing method. In 2014, it hastily revoked a few tentative steps at reform after constituents complained loudly when the NFIP tried to charge something approximating market rates for flood insurance.
Who benefits from flood insurance? People in flood-prone states like Louisiana and Florida, of course. But many beneficiaries also share another characteristic: they are upper income.Evidence suggests that recipients of flood insurance are on average wealthier than the typical homeowner. A Congressional Budget Office study found the median value of an NFIP insured home is about twice that of American homes in general. About 80 percent of NFIP households are in counties that rank in the top income quintile. As of 2012, 42 percent of NFIP properties took out the maximum $250,000 in coverage, reflecting the fact that properties near water tend to be more expensive than properties in general.

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[Manatee]

When I lived in a beach town, there was a strict building code that prohibited risky construction. That should apply everywhere.

 

[Grumpy Ol' Man]

Our home is in a flood plain. Not our choice. When we moved here 20 years ago, they told us the post supporting our rear deck was the only thing in the 100 year flood plain so we should be okay. The bank that we mortgaged our home through did not require flood insurance since the chances of any problems were nil. About 5 years after we moved here, FEMA redid the flood plain boundaries. Now, the boundary actually touched the basement wall of the home. FEMA also got together with FDIC and required all mortgages of homes in flood plains to have flood insurance for the full value of the mortgage. Suddenly, our costs escalated about $800/year. About that same time, the storm creek behind the home came out of the bank and we had some carpet damage. Our insurance agent checked with the FEMA flood insurance and they would do nothing. So, he wrote it up as "sewer backup" and we were reimbursed for our damages... less deductible.

One of our neighbors home is much further into the flood plain. They had significant loses in their basement. FEMA insurance only paid for "structural" damage. They did not reimburse for carpet, HVAC system, furniture, etc. What good is this flood insurance if it won't pay anything??

We are not amongst the "elite" that have an expensive home in a flood plain. We paid our home off almost 10 years ago and immediately cancelled our flood insurance. We regarded it as a scam for where the boundaries are drawn. In flood prone areas... In hurricane prone areas... I can see the lending agencies requiring some protection. When we look out over the large area that would need to be underwater before we were endangered... when we consider that we do not have a river, lake, ocean, large body of water within many miles of our home we wonder who draws these boundaries.

 

[Trade]

FEMA also got together with FDIC and required all mortgages of homes in flood plains to have flood insurance for the full value of the mortgage. Suddenly, our costs escalated about $800/year.

I know that $800 bucks seems like a lot to you. But the truth is, you are not paying the full freight. If it weren't for the government subsidizing flood insurance you would probably be paying more like $2000/year more.

According to the Government Accountability Office, subsidized premium rates are generally 40 percent to 45 percent of the full-risk price. The average annual subsidized premium was $1,121 in 2010, discounted from the $2,500 to $2,800 that FEMA said would be required to cover the full risk of loss.

https://www.publicintegrity.org/201...rance-premiums-are-about-half-full-risk-price