Fla. Housing Boom Bets on Flood-Risk Areas

Despite the risk of flood zones, Florida developers, as well as developers across the country, are pushing forward on new housing projects in disaster-prone areas.

Since 2019, "Florida built 77,000 new properties in high-risk flood areas," according to an analysis commissioned by The Wall Street Journal from the climate-modeling firm First Street Foundation. "Nationally, 290,000 new properties were built in high-risk flood areas from 2019 through 2023, almost one in five of the 1.6 million built in total in that period."

Nonetheless, developers insist that these projects are crucial for meeting the demands of a growing population, with more people flocking to the South and West. From 2010 to 2020, the South's population surged by 10.2%, with the West growing by 9.2%, significantly outpacing the national average of 7.4%. But while developers push forward, insurers are pulling back.

The financial fallout from hurricanes Milton and Helene has insurers bracing for payouts between $40 and $75 billion, according to ratings firm Morningstar DBRS.

According to The Journal, "The building binge is putting the real-estate industry, and the banks that finance it, on a collision course with insurers."

"The lenders need to play a role," according to Robert Gordon, a senior vice president at the American Property Casualty Insurance Association. He states that lenders can be responsible for decades, while insurers can raise rates every six to twelve months.

"The lenders … are really in the best position to make sure there's the right consideration of the long-term risk," Gordon added, whose family was forced to evacuate from Tampa ahead of Milton. "A lot of times that's not happening right now."

For the potential homeowner, the rising insurance cost leaves them in a difficult position to balance the cost of their mortgage and scramble for coverage as costs skyrocket.

Meanwhile, the UBS Global Real Estate Bubble Index 2024 underscores an additional risk — the potential for a housing bubble in high-demand areas like Miami, another "flood-prone" risk for some developments in the area. UBS ranked Miami as the highest bubble risk among 25 cities analyzed globally. "Fueled by a booming luxury market," UBS reported, prices in Miami have surged nearly 50% since 2019, even as housing prices dropped in other cities across the globe.

Out of the 77,000 new properties in Florida, 41,000 are located just outside official flood zones, leaving buyers without mandatory flood insurance.

"Millions of people are at heightened risk of flooding in hurricanes, without the protection against that risk they would be afforded if flood zones were more accurate," Jeremy Porter stated, First Street's head of climate-implications research.

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