In the long-running debate over housing subsidies, experts tend to focus on the mortgage interest deduction, a $70 billion tax break that functions as an expensive
subsidy for wealthy Americans. But there are lesser-known government programs that also have the same problem—and are ripe for reform. We don’t think of them this way, but one of them is flood insurance.
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 1968
recommended 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 over
5 million policies in force and saves policyholders
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 Moreover, the floodplain maps determining a property’s risk zone are often several decades out of date.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.
) We also have a motorhome that has a generator. If a Cat 5 hits the Gulf we'll just gas up the RV and head for our son's place near Austin.
