The Before and After Effects of Flooding on Property Taxes

Hurricanes can hurt property taxes long before any water damage is done.
November 2017
Will the assessed values of homes in flood areas in Houston decline in the wake of Hurricane Harvey? (AP)
By Frank Shafroth  |  Columnist
Director of the Center for State and Local Government Leadership at George Mason University

Cities and counties in Florida, Louisiana and Texas aren’t the only ones whose tax bases are threatened by storm-fed flooding. So are a multitude of others that sit in coastal regions, on river banks or along waterways. We live in an age of superstorms that push water into places it’s not meant to go, inflicting devastating damage.

One of the areas in which these surges are wreaking havoc are local taxes. Let me start with the obvious: Damaged or destroyed homes and businesses shrink the property tax base. That’s not only a long-term problem, but also an immediate one, as a good portion of the revenue for cleanup comes out of local coffers. In the wake of Hurricane Harvey’s devastation, Houston Mayor Sylvester Turner proposed a one-year, 8.9 percent boost in the property tax to cover cleanup and repair costs not reimbursed by federal programs. He dodged the tax increase bullet when the state offered the city $50 million for immediate relief needs.

But it’s not just the aftermath of devastating hurricanes that hurt the property tax base. The National League of Cities’ September update of city fiscal conditions identified flood and storm recovery as a key issue, noting that there is a growing risk that local governments in storm-prone areas will have to increase the property tax to gain the same amount of revenue. In part that is because the assessed values of homes in flood areas around the country have been declining as potential buyers balk at the premiums for federal flood insurance. The lack of insurance could lead an assessor in a flood-prone area to factor in a degree of risk that would lower the value of a property.

In Florida’s St. Petersburg area, there are reports that house hunters have already begun blacklisting neighborhoods where flood insurance rates are rising; real estate agents in the area report that the flood insurance rates are increasingly discouraging prospective buyers.

It is not surprising that homeowners are reluctant to buy flood insurance. The National Flood Insurance Program, which is itself awash in debt, has been reducing and eliminating subsidies that help homeowners pay for the high premiums. This fall, federal subsidies for businesses and primary homes began being phased out for those who buy homes in flood zones or sign up for new policies. At the same time, the Federal Emergency Management Agency, which runs the insurance program, is reassessing its risk calculations and redrawing flood maps, which will bring higher insurance rates to some areas.

Higher rates could affect how much a buyer will pay for a property. They could also affect how a home is built. Let’s call it the “Noah’s Ark effect.” A home with flood-proofed improvements -- such as raising the home above flood levels -- will likely have lower flood insurance premiums and be assessed at a higher value (and thus bring a locality more revenue) because it is at less risk. Clearly, assessed values of properties in flood-prone areas are higher if owners take steps to protect their property. Some localities are trying to mandate such steps. 

Norfolk, Va., which faces massive flooding risks from the combined threat of rising sea levels and sinking land, has proposed a new zoning ordinance that includes rules that would require the first floor of any new home to be elevated and for new developments to capture more stormwater onsite -- a change the city believes would help reduce road flooding. “What we’re trying to build,” says Planning Director George Homewood, “is a resilient community.”

Some countries go further. Take the Netherlands, which despite its vulnerable sea level siting, does not generally offer flood insurance. It focuses on constructing robust “flood-resistant” infrastructure.