Homeowners Tag

In May 2022, footage of a North Carolina beach house plunging into the sea went viral.

The owner had purchased the property two years prior for $275,000, and its collapse was a stark illustration of how the climate crisis could impact coastlines around the world.

The clip could be seen as an example of “unmanaged retreat”, a growing threat from rising sea levels, accelerating erosion and increased frequency of storms. It would clearly be better to take a pre-planned and “managed” approach to moving from these high-risk areas. But what does that mean, exactly, and what are the challenges involved?

Managed retreat is the practice of abandoning or completely relocating occupied properties built in areas of high climate-related risk, such as coastal or flood-prone lands. A 2018 report by the UK Committee on Climate Change said that 4% of existing homes are at an annual flood risk of 0.5% or more by 2080. Projected economic damage from flooding and erosion mean 33-41 miles of coastline isn’t worth it. defend this century.

However, selling the idea of ​​a managed retirement to the people whose homes are targeted is no easy task.

“At the heart of it all is a decision to be made as to whether a place is worth protecting or no longer economically viable, and no one wants to be told their home isn’t worth worth saving,” says Bob Ward, policy director at LSE’s Grantham. Institute of Climate Change and the Environment.

Managed retirement and insurance

Governments around the world, including the UK, have focused on building strong flood defenses or rebuilding immediately following a disaster, Ward notes. “But should we rebuild or use it as a signal to ask people to move away?”

According to Gary Griggs, a distinguished professor of earth sciences at the University of California, Santa Cruz, the biggest challenge is getting buy-in from a community. In California, the task is particularly tricky because coastal properties tend to be among the most expensive in the state.

“The idea is very alien to wealthy landlords, they have no interest in it,” Griggs says. “But we can’t hold back the ocean. It will therefore be either a managed retirement or an unmanaged retirement.

So far, insurance policies in the UK have not encouraged homeowners to favor a managed pension after a flood. For example, Ward mentions Flood Re home insurance, a government and insurer initiative to make flood coverage more affordable. It has essentially been “a tacit subsidy” for homes in areas at high risk of flooding, he says. “It was effective so there was no price signal to the homeowner that they were in a high flood risk location.”

It’s a similar story in the United States, where Griggs cites problems with the Federal Emergency Management Agency’s National Flood Insurance Program (NFIP). The NFIP offers subsidized home insurance rates for properties considered too risky for commercial insurers. However, these rates have not been updated since the 1970s, again encouraging residents to stay put and rebuild, rather than move away. “They finally got to the point of re-pricing their insurance to reflect the actual losses because the program has gone into debt by billions of dollars year after year,” he says.

When Hurricane Sandy hit New York and New Jersey in 2012, the government bought out some of the coastal homeowners whose properties had been flooded and paid for them to move. The owners could then rent the house until it was no longer usable.

The program was well received, but Griggs notes that homes were only worth $200,000 to $300,000, whereas in some parts of the United States, such as California, homes can cost up to $40 million. Neither the state nor the central government has the finances or the inclination to cover such properties.

Next steps

Homeowners can redevelop their properties to mitigate flood risk. For example, they could build on stilts or make lower floors fully sealed without electrical outlets, as is sometimes seen in the Netherlands, according to Ward, where there is no tradition of insuring flood-prone properties. However, he says no new properties should be built in areas that are high risk or will become so within the next 80 years.

What about existing at-risk properties that were built before the climate crisis was a factor? “You have to design a system that recognizes and then fairly allocates costs,” says Ward. This includes the costs of losing property but also the costs of relocating in the most efficient way. “We need a societal response, and insurance should be part of that conversation.”

He insists on the need for proper protocol, rather than waiting for disaster. This last scenario is very painful. This is an ad hoc process that usually involves those affected bearing the cost, followed by extensive compensation packages.

“Any kind of economic analysis shows it’s the most expensive option of all.” If managed retirement is done correctly, with conversations starting perhaps 20 years in advance, it offers a more economically viable and less disruptive process, he believes.

“You need the community involved and setting a threshold that they can agree on,” says Griggs. For example, when a house floods once a month or when the cliff comes within two meters of a porch.

It’s not about suddenly stopping in-place investing, says Ward. “You have an investment profile that says we’re going to gradually reduce investments over time and we’re not going to maintain defenses after this point, roads after this point,” he says.

This is exactly what happened in the Welsh village of Fairbourne, where the local council said it could not afford to maintain sea defenses at a cost of £19,000 a year. The village will be gradually decommissioned and become marshy again by 2054.

government action

It’s difficult for the government, which is in the process of drafting a new National Adaptation Agenda, Ward says. However, he must act.

“Unless pressured to tackle it, the government has not shown great enthusiasm to get involved,” he says. “We don’t have a cohesive strategy that emphasizes making good decisions and managing risk. The central government does not have to bear all the costs itself, but it must be the appropriate power to bring together all the different stakeholders.

What if the owners still wanted to take the risk? “Your premiums would go up, the price of your property would go down, and at some point you wouldn’t be able to get insurance,” he says. “But you can’t continue to have a system where not knowing the risk is a better situation.”