Across America there’s a new battle for waterfront property, a fight which involves real estate worth more than $1 trillion. Will Uncle Sam continue to provide low-cost flood insurance that makes riverfront and seashore development possible? Will the private sector step in if the government steps out?

The National Flood Insurance Program (NFIP) is scheduled to end in September and with it the ability to insure properties in flood zones nationwide. Without insurance mortgage lenders won’t finance such homes, and without financing many borrowers will be pushed out of the market, thus lowering values. While it might seem as though the simple solution is to extend the program, the reality is that the NFIP owes $25 billion to the Treasury and the potential for more liabilities grows with every rainfall and storm surge.

In Washington the issue has been brought to the front burner by two proposals: One idea is to cancel the Treasury debt and start fresh, an idea opposed by many on Capitol Hill who believe that such forgiveness represents a subsidy for waterfront property owners paid for by taxpayers who never get to the beach. The alternative approach is to require market-rate premiums, premiums which might make flood insurance unaffordable for many current and potential property owners.

The debate is increasingly important not only because of the September deadline but also as a result of changing weather patterns. Since 1980 some 200 “weather events” have each resulted in losses of $1 billion or more. The total now tops $1.1 trillion. More ominously, the numbers are getting bigger. A severe rainstorm in Louisiana last year – not a hurricane, not a tornado, and not a beachfront storm surge – resulted in flood damage to more than 100,000 homes and damages of nearly $9 billion near Baton Rouge.

Across the country the efforts to stem flood damage are increasing. Miami is spending $400 million for pumps while New York will pay $20 billion for a system of levees to protect lower Manhattan, one of the most valuable pieces of real estate in the world. On the Pacific coast, California is looking at a $50 billion bill for flood control.

What happens without flood insurance or efforts to make waterfront communities less prone to water damage? In some areas we may see “managed retreats,” the abandonment of flood-prone properties which can no longer be protected from rising waters.

Taken together what we’re really talking about is the potential loss of many traditional waterfront areas, a loss caused by rising waters and stronger storms which makes the lynchpin of the whole system – flood insurance – either too expensive or impossible to obtain.

What will Washington do?

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