The Conservative Case Against Flood Insurance

Mytheos Holt

9/23/2013 3:37:00 PM - Mytheos Holt

In the recent Hammer Horror film The Woman in Black, lawyer Arthur Kipps (played by erstwhile Harry Potter star Daniel Radcliffe) undertakes the project of sorting through the possessions of a deceased woman at her late home, Eel Marsh House. The house is a dilapidated wreck, which is only accessible at some times of day because the road to it is flooded the rest of the time. To make things worse, it is haunted by an infanticidal ghost (the titular woman). Needless to say, after a few disturbing encounters with the latter entity, Kipps tries to escape.

However, faced with the incentives created by America's flood insurance program, one suspects that Kipps would have taken his chances with the ghost. Certainly, many Americans do, despite being faced with dangers far more evident and far less selective about their victims than a fictional spectre. This is their right. What is not their right is to inflict taxpayers with their tolerance for risk that ought to be intolerable. And whether such homeowners realize it or not, that is precisely what the National Flood Insurance Program does in its present form.

Fortunately, as of last year, the federal government decided to make a small attempt to rescue fiscal responsibility from its watery grave, and passed the Biggert-Waters Flood Insurance Reform Act of 2012. This bill made some small, but positive steps toward stemming the deluge of taxpayer money that NFIP sprays out. Most notably, it phased out subsidies that were keeping the expenses of flood insurance substantially below market rates. However, due to political pressure, there is a real danger that these positive steps might be gutted, in the disingenuous name of "compassion."

Unfortunately, as conservatives know, in Washington, "compassion" is often indistinguishable from myopia, and bleeding hearts are often simply wet behind the ears. So let's set the record straight: There is nothing compassionate about rolling back flood insurance reforms. It is a regressive policy that puts not only taxpayers at risk, but families and communities as well, and does so via excessive government control. All of these are problems that conservatives should want solved with more urgency than anyone else.

Let us begin with the regressivity. As the R Street Institute noted in a letter cosigned with other conservative groups, "it is important to understand where the majority of subsidies actually flow. 29 percent of the properties located where NFIP operates are in counties with the highest 10 percent of income, and 43 percent of subsidized properties are in counties in the top 10 percent of all home values."

To drive this point home, consider the sorts of homes that flood insurance quite literally props up at the moment, as described in a Bloomberg article on this subject:

In the coastal areas of Greenwich, Connecticut, the latest housing craze requires hydraulic jacks, pylons and stilts. One home towers over its neighbors like a cruise ship. Others look like expensive tree houses.

Surely, to many Americans, the idea of spending their hard-earned money to support people rich enough to afford such luxury rankles at least a little. And while conservatives may rightfully be skeptical of class resentment as a justification for policy, in this case, the resentment hints at a deeply unconservative problem -- namely, that such regressivity is also an attack on self-reliance. After all, it is surely the case that, if those with the highest 10 percent of income cannot manage their expenses without forcibly expropriating money from what Charles Dickens called "their hungry brothers in the dust," then no one can. The day the people of Greenwich, Conn. require socialism to support themselves is the day everyone less well-off has a right to demand it.

Moreover, while expecting the bottom 90 percent of income earners to prop up the top 10 percent can be justified in rare instances, liberals and conservatives can surely agree that those instances are extraordinary cases and require extraordinary justification. But in this case, there is no justification, extraordinary or otherwise. Why? Because along with putting taxpayers at-risk for losing money (and the NFIP is currently $28 billion in debt to them), the current flood insurance regime puts many Americans at risk of losing something far more precious -- their lives.

After all, it bears repeating that flood-prone areas are not merely bits of land with an unusually high concentration of water. They are, rather, the parts of America that are most likely to be ravaged by storms. With the rise of celebrity storms like Hurricane Sandy, and the increasing frequency with which such natural disasters make landfall in the United States, it is irresponsible to the point of madness to give Americans an incentive to purchase and/or build homes that are likely to stand in their path. Indeed, of the 15 seasons with the most named storms on record, all but five have been in the 2000s. Given that individual hurricanes often claim hundreds of lives, artificially low flood insurance prices are an invitation to risk not merely massive amounts of money in property damage, but also the lives of thousands of Americans and their families. To many conservatives, incentivizing the destruction of innocent human beings is the worst sin the government can commit.

Moreover, even if lives are not destroyed by storms, livelihoods are almost certainly casualties. To return briefly to Greenwich, consider what happened to its homeowners after Hurricane Sandy:

Many of the first Greenwich residents to lift their homes suffered so much damage during Sandy they had no choice: Repairs exceeded 50 percent of the value of the home, which triggered a federal rule requiring the structure to be rebuilt higher.

Indeed, for some residents of Greenwich, the costs of the aftermath of Hurricane Sandy soared as high as $300,000. This is a cost that the 11th wealthiest zip code in America may be able to bear, but which it is surely unreasonable to expect taxpayers to bear for them, and which it is sheer folly to encourage people to risk on their own. It is unreasonable, unwise and most certainly uncompassionate.

So whence the claim that opposing flood insurance reform is compassionate? The answer is that opponents of flood insurance reform frequently point to those who already live in such areas, and will suffer from increased rate hikes as the victims of a more market-based system. Yet as the R Street Institute points out, "The universe of homes facing large hikes is very small and consists mostly of areas with extraordinary risk resulting in a total loss roughly once every ten years." In other words, this is an argument for means testing, mitigation or buyouts, but most certainly not for crippling flood insurance reform. By way of analogy, if a group of Americans lived inside an active volcano, the solution would be to find them new homes, not to make living in volcanoes cheaper.

Perhaps the more valid question, then, is cui bono? That is, who benefits from an irrational flood insurance regime? One has only to look at the universe of people most frightened by this policy to see the answer -- namely, home builders and real estate agents. On some level, one can understand their concern. Waterfront properties with a high risk of flooding are often very valuable and presumably net higher commissions. It is easy to see whence the cries of "compassion" come when such peoples' ability to reap profit and offload risk on taxpayers is threatened.

But conservatives (and, one hopes, policymakers generally) should not be fooled by their faux compassion -- after all, we remember the last time Americans were seduced into the belief that they were entitled to homes they couldn't afford, and that those sounding the clarion call of fiscal responsibility were simply uncompassionate misers. When the edifice of deception propping up that lie collapsed in 2008, Americans reaped the whirlwind.

If the faulty structure of flood insurance is not fixed, it is not only taxpayers who will be underwater, but also America's families who will reap the hurricane.